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Digital shift helps Aristocrat weather Covid-19 impact in FY2020

| By Daniel O'Boyle
Aristocrat Leisurerevenue declined 5.9% to AUD$4.14bn (£2.28bn/€2.55bn/USD$3.03bn), as a growth in digital revenue helped offset the impact of the novel coronavirus (Covid-19) pandemic on the land-based sector in its 2020 fiscal year.

The supplier’s digital arm made up a majority of Aristocrat’s revenue for the first time, due to the impact of the novel coronavirus on land-based gaming.

Revenue from the channel grew by 31.9% to $2.36bn in the 12 months to 30 September.

“Aristocrat Digital delivered exceptional operational performance, while continuing to diversify and strengthen its portfolio and pipeline of new games,” the supplier’s chief executive and managing director Trevor Croker said.

“Aggressive and dynamic investment in user acquisition supported momentum and allowed the business to fully leverage Covid-19 related tailwinds, while taking further significant strides forward in organisational scale, capability and effectiveness.” 

The supplier said this was largely due to “outstanding performance” of its social casino product as well as the success of its Raid: Shadow Legends game.

Gaming services revenue declined by 24.6% to $930.8m, while gaming machine sales were down 38.7% to $848.8m with outright sales volume down 45%.

Combining land-based and grouping by region, the total from the Americas, previously Aristocrat’s largest revenue stream, fell 29.8% to $1.37bn, while revenue from Australia and New Zealand dropped 39.5% to $280.6m. International revenue was down 35.7% at $131.4m.

Aristocrat CEO Coker said these shifts mean the supplier is set to be better equipped for the future when the pandemic passes than before it started.

“In May, we said that Aristocrat entered the Covid-19 challenge in good shape,” he said. “Six months on, and notwithstanding the uncertainties that remain, we believe we’re well placed to emerge from this period in even better shape. 

“Our results for the full year to 30 September 2020 demonstrate that we have enhanced our financial fundamentals and further accelerated our underlying operational momentum, despite the exceptional challenges and volatility generated by Covid-19 on our business, customers, players and people across the majority of the period.”

Due to the shift in channel of much of its revenue, Aristocrat’s cost of revenue was up 10.7% to $2.18bn, including $449.4m spent on digital user acquisition, up 37.0%. This meant that gross profit was down 19.4% to $1.96bn.

Aristocrat made $27.4m in other income. This was a 146.8% year-on-year increase.

However, it paid $1.62bn in operating expenses, up 10.2%. The largest contributor to this total was general and administrative costs, which grew 11.9% to $684.4m. Design and development costs, meanwhile, slipped 0.5% to $497.4m while sales and marketing costs were up 34.1% to $291.1m and finance costs grew 11.4% to $151.2m.

This resulted in a pre-tax profit of $359.m, down 63.1%.

However, the business received a $1.02bn income tax benefit because of a deferred tax asset. After this, its profit came to $1.38bn, up 48.3%.

By segment, digital brought in the most profit, as this total grew 37.4% to $726.9m. Land-based operations in the Americas made a profit of $517.3m, a 51.8% decline, while in Australia and New Zealand, this profit was just $$58.9m, down 72.4%. International land-based revenue was down 63.6% to $34.3m.

After accounting for foreign exchange rate changes, Aristocrat’s net profit came to $1.26bn, up 74.5% from FY2019.

While Croker noted the success in adapting to the crisis, director Kathleen Conlon noted that the year was still “challenging” for the business.

“FY2020 has been a challenging year for Aristocrat,” she said. “We delivered strong performance pre-Covid, while also growing share in key gaming (Land-based) markets and segments and delivering outstanding growth in our Digital business over the full year. 

“Despite this, our overall financial performance was materially impacted by mandated venue closures and the implementation of social distancing measures that have been in place in key markets globally since March 2020.”

In March, Aristocrat withdrew its outlook statement for the year due to “softer demand” caused by the virus. In April, the business announced that it would furlough 1,000 employees and permanently lay off another 200, mostly in and-based sales, service and manufacturing operations and mostly based in the US.

In the first half of the year, which ended on 31 March, Aristocrat’s revenue came to $2.25bn, up 7.0% year-on-year, as digital revenue grew 27.3% year-on-year to $1.04bn.

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