The Lottery Corporation Limited (TLC) Earnings Call Transcript & Summary

Good morning, everyone. My name is Doug McTaggart, and I'm Chairman of the Lottery Corporation Limited. On behalf of the Board, I warmly welcome you to the company's 2026 Annual General Meeting. I begin by acknowledging the traditional custodians of the land on which we are meeting today, the Gadigal people of the Eora Nation, and I pay my respects to their elders past and present. I will now introduce our Board. Wayne Pickup, our Managing Director and CEO. Next to Wayne is Anne Brennan, Independent Non-Executive Director and Chair of our Audit Committee. To Anne's left is John O'Sullivan, Independent Director and Chair of our Risk and Compliance Committee. Harry Boon, next to John, Non-Executive Director and Chair of our People and Remuneration Committee, and Harry retires immediately after the meeting today. Tim Poole comes next, Independent Non-Executive Director and the incoming Chair of our People and Remuneration Committee following Harry's retirement. And down at the end, next to Tim sits Megan, it's a long table Megan, Independent Non-Executive Director. And last, but certainly not least, our Director from the U.S., Stephen Morro, Independent Non-Executive Director. And next to me is Genevieve Ryan, our Company Secretary. We have with us the members of our leadership team. I hope you've met some of them before and if not, I'll introduce them now. I'll ask them to stand as I introduce them. Adam Newman, our Chief Financial Officer; Callum Mulvihill, our Chief Operating Officer, Lotteries. Loren Somerville, our Chief Operating Officer, Digital; Antony Moore, our Chief Operating Officer, Keno; and Rob Ure, our Chief Strategy Officer; Michelle Williams, our Chief People and Brand Officer. And as you can see, by their titles, it reflects our new operating structure, which our CEO will talk about. There is a quorum of shareholders present today, and I declare the 2026 Annual General Meeting open. A notice of meeting has been distributed to shareholders, and I'll take it as read. Before we start, I'll hand over to our Company Secretary to take us through the meeting procedures.

Good morning, everyone. It's a pleasure to welcome you to our AGM. Before we move to the formal business of the meeting, I will outline the procedures for today's meeting. Could I please ask that all phones are switched off or on silent and that no photographs or recordings are taken at the meeting. A recording of the presentation will be made available on our website shortly. Shareholders and proxies who are here in Sydney today will have received an admittance card. A yellow card was issued to shareholders and proxies entitled to vote and speak. A blue card was issued to shareholders who are entitled to speak but not vote. Visitors have been issued a white card. I remind visitors that they are not entitled to speak or vote today. Shareholders will be given a reasonable opportunity to ask questions and make comments as each item of business is considered. Please ensure that your question or comment is relevant to the item of business and to shareholders as a whole. If you wish to ask a question or make a comment, please make your way to a microphone if you're able; otherwise, raise your hand and a microphone will be brought to you. Please show your blue or yellow card to the relevant team member and once invited, introduce yourself, including the shareholder you represent if you are a proxy holder. To ensure as many shareholders as possible have the opportunity to participate, we respectfully ask that questions per agenda item are limited to 2 per shareholder. Thank you to those shareholders who have submitted questions before the meeting. Some of those questions will be answered through the Chairman or CEO addresses, both of which have been released to the ASX before today's meeting. Voting on all resolutions will be conducted by a poll. Rachel Teo of MUFG Corporate Market Services, the company's share registry, will act as returning officer for the conduct of the poll and will collect your voting cards at the end of the meeting or before if you need to leave early. The Chairman will declare when voting is open. Details of the proxies received before the meeting in relation to each resolution will be shown on the presentation slides after discussion on that item. The results of the poll will be made available on the company and ASX websites later today. If there are any procedural aspects you are uncertain about, please ask one of the share registry team members. That covers the logistics of the meeting today, and I'll now hand back to the Chairman.

Thank you, Genevieve. Now I will give you my assessment of the year. Sydney is a fitting place to reflect on what this industry makes possible. From helping fund the construction of the Sydney Opera House to supporting hospitals across New South Wales, lotteries has had a long and lasting impact on the communities in this country. Today, that legacy continues. Every week, millions of Australians play for the chance of a life-changing win and the enduring connection between lottery proceeds and public good remains central to our purpose today. Turning to the 2026 financial year. In a year of unusually low jackpot activity, the Lottery Corporation delivered a resilient result. During the year, Powerball and Oz Lotto experienced an exceptionally soft year for big jackpots, an outcome expected only once in every 45 years. It was the first time in 5 years that Powerball didn't jackpot to $100 million and the first time in 9 years that Oz Lotto jackpot didn't get to $50 million. Current events notwithstanding, things might turn. We'll see. Naturally, that had a short-term impact on turnover and customer numbers. But when you look at the numbers over the longer term, jackpot runs tend to balance out over time as we're seeing now. Pleasingly, the underlying business continued to perform very well. Strong cash generation, disciplined cost management and the diversity of our portfolio across games, channels and customer segments helped offset the unusual jackpot environment and provide stability throughout the year. This resilience, which is a key feature of the company's business model, gave the Board confidence to maintain the full year ordinary dividend at $0.165 per share, in line with fiscal '25 -- fiscal year '25. We remain well positioned for the future as a compelling long-term investment proposition, supported by our long-dated licenses, leading brands, a national retail network, growing digital presence and the strong ability to generate cash. FY '26 was also a year of significant transition and progress as we position the business for its next phase of growth. Following Sue van der Merwe's retirement, Wayne Pickup joined as Managing Director and CEO in November. Wayne brings extensive global lottery experience spanning 25 years and was most recently CEO of Allwyn North America. We will hear from Wayne shortly. Supporting the CEO, the Board endorsed a refreshed strategy and operating model to sharpen accountability, simplify operations and support long-term growth. The most strategic -- significant strategic achievement of the period was securing the 40-year extension of our Victorian lotteries license through to 2068. Victoria represents around 30% of our lotteries turnover. This extension aligns Victoria more closely with our broader portfolio of long-dated licenses and provides certainty for decades to come. It also allows us to plan and invest with confidence, benefiting shareholders, the state, our retail partners and Victorian communities supported by our lottery proceeds. As part of the financing the lottery extension, we successfully raised $800 million through an Australian medium-term note issue, the Lottery Corporation's inaugural debt capital markets transaction. The strong support from institutional investors reflected confidence in our infrastructure-like cash-generative business model and our long-term future. The transition expands our funding base, enhances debt capital diversification and supports our long-term funding requirements, and we are grateful for the market's support. Board renewal remains an important part of maintaining strong governance and ensuring we continue to strengthen the mix of skills, experience, diversity and perspectives around the Board table. And I can assure you there are many perspectives we discuss and debate along the way. As previously announced, Harry Boon will retire from the Board at the conclusion of today's meeting. Harry has made a significant contribution to the Lottery Corporation and its [indiscernible] businesses, having joined the Board of the Tatts Group in 2005 and seeing through the establishment and evolution of the company as a stand-alone ASX-listed business. On behalf of the Board, Harry, I extend our sincere thanks for your contribution and wish you well in your well-earned retirement. Following Harry's departure, Tim Poole will succeed Harry as Chair of the People and Remuneration Committee. Throughout fiscal '26 -- FY '26, the Board maintained close oversight of the company's strategic direction, risk management framework and stakeholder engagement as well as engagement on regulatory and policy developments shaping the lottery sector. Federal gambling reforms recently passed by the federal government during the year, including measures to ban online Keno and foreign matched lotteries beginning January 1 next year. These reforms enhance consumer protections, strengthen the integrity of regulated markets and support the long term -- the lottery industry's long-term sustainability. And I have to say our team contributed well working with the federal government to get these laws passed. In closing, I would like to thank our people, the senior leadership team and my fellow directors for their dedication and contribution through FY '26. Even in an unusually low year for jackpots, the resilience of the underlying business shone through and enabled us to hold the dividend. We displayed cost and capital discipline that you can expect from us as we focus on delivering long-term value for you, our shareholders. It was also a year in which we strengthened the company's long-term foundations. Our license portfolio is stronger, our strategic direction is clear, our balance sheet remains strong and we are well positioned to deliver sustainable value for shareholders over the long term. Thank you for your ongoing interest and support. And I will now hand over to our Managing Director and CEO, Wayne Pickup, to address the meeting. Thank you.

Thank you, Doug, and good morning, everyone. I appreciate the opportunity to address you today. When I joined the Lottery Corporation a year ago, I saw a business with strong fundamentals, trusted brands, long-dated licenses, a national retail and venue network with millions of Australians who choose to play with us. I also saw there was an opportunity to build on those strengths and evolve the business for how Australians want to play today and into the future to evolve from being a lottery operator to a digitally led entertainment company. Over the past year, we have taken important steps towards that goal. We have refreshed our strategy, introduced a new operating model and moved quickly into execution. As Doug outlined, in FY '26, our jackpot games didn't reach those very large offers. $100 million-plus for Powerball or the $50 million-plus for Oz Lotto, where turnover grows the fastest. This lean run impacted turnover by an estimated $700 million versus model expectations. You can expect this variability to even out over time. Against that backdrop, the group delivered $3.6 billion of revenue, $736 million of EBITDA before significant items and maintained total ordinary dividends at $0.165 per share, a payout ratio of 107% of NPAT, reflecting the financial power of this business. From FY '27, we'll move to a payout ratio based on NPAT pre-significant items and adding back license amortization after tax, a more cash-based measure that fully reflects our cash-generative nature and supports the consistent, reliable dividends that are a critical element of our capital management framework. More importantly, it's momentum in pricing, base game participation and digital share that matters more to the long-term trajectory. Encouragingly, these indicators continue to move in the right direction. We've also achieved excellent price retention from pricing changes to our 2 biggest games, Saturday Lotto and Powerball. Turnover in base games grew 5.6%. Digital share of lottery sales continued to increase, growing 90 basis points. Keno delivered another record result. Operating costs reduced, driven by disciplined cost management, including the benefit of our ongoing optimization activities. Structural changes to our cost base are giving us room to invest in areas where we can drive growth and better returns on capital like digital, AI, product and the customer experience in retail. When we evaluate our business, we look through the short-term variability with a firm view on long-term value creation. FY '26 was a year of preparing the business for its next chapter of growth by refreshing the strategy. We simplified the organization and sharpened our focus on the areas where we can create the most value. Our strategy is focused on 3 priorities: strengthening our domestic position in lotteries and Keno, leading in digital entertainment and building a high-performance enterprise. Looking back, I am pleased with the progress we have made as we began executing against these priorities. Among our achievements was securing the long-term extension of our Victorian license, continuing to optimize our game portfolio and progressing initiatives to support sustainable growth. Our lotteries portfolio is strong and diverse, but game innovation and evolution will always be an important growth lever. We have a proven and repeatable playbook where we evolved the portfolio by cyclically changing the game subscription price and lifting prices. The change to Powerball last November increased prizes across all divisions and was enabled by a price change. It's working as planned. We completed the design and development of a refresh of Set for Life, which launched last month. Winners now receive an additional $200,000 upfront in Division 1 and a further $20,000 in Division 2. The change is supported by a $0.10 per game price increase and is designed to enhance the value proposition while supporting long-term growth. We're seeing good early retention of the Set for Life price change. As we look ahead to FY '27, we will strengthen our core lotteries business, and we see a timely and compelling opportunity to optimize Oz Lotto. Oz Lotto plays an important part in the portfolio as 1 of our 2 jackpot games alongside Powerball. We're targeting a price and matrix change for the second half of calendar year 2027, subject to all approvals. We also see more opportunity in daily and instant games and improving the retail experience. Growing our customer base and deepening customer engagement is now a core focus for the business. We are laser-focused on understanding our customers, how engaged they are and where we can create value. We have set ourselves a very simple target of having more customers playing our games more often. We already have more than 4 million Australians who play our games each year and are not registered. To make it easier for customers to play and stay connected with us, we have introduced initiatives such as Check & Collect and ticket-based QR code membership sign-ups. Keno's recent growth story continued in FY '26. Pubs and clubs continue to experience good levels of footfall. Our aim has been to gain share of wallet by making the in-venue experience more visible and more engaging. The recent federal gambling reforms mean online Keno will no longer be permitted from next year, and we expect the full year impact for us will be circa $25 million of EBITDA based on FY '26. What this does not change, however, is the strength of our retail Keno business. Keno is firmly anchored in Australia's pubs and clubs, and that's where our vast majority of our customers play. Our response will be to double down on Keno in venues, making it more social, engaging and available. Our planned bring-your-own-device capability will give customers more choice on how they play Keno within venues while also supporting venue expansion opportunities. We also continue to invest in new terminals, cashless payment options and the underlying technology platform. Turning to digital, what I see as our biggest growth opportunity. This is about more than selling tickets online, it's about creating an entertainment experience that customers want to come back to. The recent launch of the Reveal and Play Pick within The Lott app are examples of what we're talking about here. These features make playing lotteries through The Lott app a more playful and entertaining experience, not simply a functional one. Initiatives such as digital gifting, syndicates and other ways for customers to play and share experiences can make lottery play even more social and interactive. The third pillar of the strategy is building a stronger and sharper enterprise. This is about modernizing our operations, maintaining strong expense and capital discipline and ensuring we have the capabilities, systems and culture to deliver sustainable long-term growth. Over the past year, we have evolved our operating model to be simpler, more focused and more accountable, improving decision-making, accountability and pace across the business. The value created by The Lottery Corporation extends well beyond the enterprise. Most of every dollar spent on lottery and Keno products flows back into the Australian economy. In FY '26, over $5 billion was paid in prizes and $1.7 billion was paid in taxes and duties to state and territory governments. We also paid $637 million in commissions to our retail and venue partners who are mostly small and family businesses such as news agencies. Those funds help support essential government services, local businesses and jobs in communities. We also contributed more than $5 million to community organizations supporting initiatives such as health, medical research, education, homelessness, mental health, arts and culture and the environment. It's an important part of who we are and the role we play in Australian communities, and we are proud of our contribution. Just as important as maintaining the trust customers place in our brands. During the year, we continued to strengthen our responsible play initiatives, investing in customer support tools, data-led interventions and gambling harm research. Operating responsibly is fundamental to maintaining our social license and supporting long-term growth. Looking ahead, our direction is clear. We have a strong core, leading brands and long-dated licenses. The Victorian license extension to 2068 further strengthens our infrastructure-like characteristics. We have an extensive retail and venue network and millions of Australians who choose to play with us. Our job is now to build on those strengths. In lotteries, it's investing in product and marketing to drive participation and know more customers. It's about continuing to invest in retail and that critical connection between the retailer and the customer. In digital, we have a strong pipeline of initiatives backed by a new team, and we're investing confidently in Keno, rebuilding it around pubs and clubs to make it more entertaining and deliver simple social play. These are our opportunities, and it's how we will become where Australia comes to play. As for the first 3 months of FY '27, Division 1 offers for our jackpot games have been below modeled outcomes. Overall, the underlying health of the business remains strong, and we will continue to manage the business for the long term. We are pleased to see Powerball roll through to $100 million for tomorrow night, our first such draw in 16 months despite statistical expectations being for 3 such draws every 12 months. We're encouraged by sales, digital share and the new sign-ups we've seen to date, whilst noting that half of our sales typically occur in the last 24 hours leading up to a draw. These big draws are important, not just for sales, but are attracting attention and new customers to the category. Finally, and very importantly, I want to thank our people for their hard work throughout the year and thank our Board and shareholders for your ongoing support. We have a strong business, a clear strategy and a significant opportunity ahead of the Lottery Corporation. I thank you.