Finance

Aristocrat aided by strong digital performance in H1

| By Richard Mulligan
Aristocrat Leisure said a strong digital performance helped it to steady revenues and deliver positive earnings in the first half of its 2020-2021 financial year, despite the effects of the novel coronavirus (Covid-19) pandemic.

The Sydney-headquartered games supplier reported a 1.0% drop in revenue to A$2.23bn for the six months to 31 March, 2021, down just slightly on the 2020 figure despite COVID-19 restrictions in many markets and foreign exchange headwinds.

Aristocrat said on a constant currency basis, revenue was 10.7% higher than the prior period, reflecting strong operational performance in Digital, Americas and ANZ Gaming, but partly offset by international markets remaining largely closed.

Segment revenue was broadly in line with the prior corresponding period, while the percentage of total revenue derived from recurring sources increased by 5.8 percentage points to 79.5% compared to the prior corresponding period, principally driven by Digital, and a robust recovery across North America gaming operations, combined with lower global outright sales due to Covid-19.

Aristocrat saw a 1.7% increase in revenues in Australia and New Zealand to A$209.1m, while Americas revenue was down 11.1% to A$810.2m and its much smaller International Class III division fell 81.5% to A$16.8m.

However, digital revenue grew by 14.3% year-on-year to $1.19bn, with ongoing growth propelling Aristocrat Digital to become a Top 5 mobile games publisher in tier 1 western markets, according to data and analytics provider App Annie. It also achieved seven games in the US top 100 over the period.

Aristocrat said its normalised profit after tax was broadly in line with H1 2019, reflecting growth in digital, supplemented by a strong recovery in the Americas and ANZ Gaming markets, and partly offset by unfavourable foreign exchange movements which cost an estimated $52m.

Segment profit – excluding any revenue or expenses at the corporate level – increased A$32m (or 4%) in reported currency compared to the prior corresponding period, to A$889.7m. Profit margins across ANZ and Americas increased from 37.5% to 40.6% and from 49.4% to 50.8% respectively, driven by product performance and increased operating leverage compared to the prior corresponding period. Margin in International Class III was significantly impacted by Covid-19-related customer venue closures and travel restrictions.

Digital margin increased from 28.5% to 33.7% due to strong portfolio performance and the fact that there were no new game launches scheduled in the period. User Acquisition remained at 28% of Digital revenue which Aristocrat believes will support long-term profitable growth.

Aristocrat said it continued to invest significantly in talent and technology to deliver competitive product across a broader range of gaming segments and digital genres. Investment in research and development remained at 11% on a percentage of revenue basis, while corporate costs decreased by $3.5m compared to the prior corresponding period.

The supplier paid a further A$267.4m in general and administrative costs, $95.3m in sales and marketing costs and $69.9m in finance costs.

Aristocrat’s statutory results show a 21.4% rise in profit from ordinary activities before tax to A$461.5m, with the after-tax figure down 73.5% to $346.5m.

The effective tax rate (ETR) for the reporting period was 24.7% compared to 24.2% in the prior corresponding period, reflecting changes in the geographic mix of the business.

In normalised results – excluding items such as a deferred tax asset in the prior period – profit before tax was up 19.1% to $480.9m with after tax and before amortisation of acquired intangibles was up 11.8% to $411.6m.

Trevor Croker, Aristocrat’s chief executive and managing director, said “The outstanding momentum we’ve delivered this half reflects our unwavering focus on the things we can control, which lies at the heart of our proven growth strategy.

“Despite the uncertainties driven by COVID-19, we have maintained investment in the best people, talent, technology and product portfolios, and taken conscious decisions to accelerate implementation of our strategy.

“The results are reflected in the share growth and margin expansion achieved across Digital and key Gaming segments in the six months to 31 March 2021, and the double-digit increase in normalised Group NPATA delivered in the same period.

“We expect uncertain and volatile conditions to continue near term, and we are closely monitoring key factors including consumer sentiment and gaming venue patronage.

“Nevertheless, we enter the second half of fiscal 2021 with excellent momentum, resilience, and confidence with a strong balance sheet to continue to invest organically to grow share and accelerate growth through M&A in line with our rigorous criteria.”

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