ARISTOCRAT FY10 CONF CALL NOTES

In-line quarter with higher ship share in 2010.  Expects higher North American replacements but lower expansion units in 2011.

”Our impressive widescreen innovation in North America helped the Group achieve value and share growth in the outright sale segment in 2010, despite a double-digit fall in overall demand. The fee per day performance of our new gaming operations products is also very encouraging, and significantly ahead of the average fee per day performance of our legacy products. Portfolio quality is key to performance improvement. As a result, we expect to continue to see faster progress in those markets such as North America where our turnaround program is more advanced, than Australia and Japan. Momentum is improving across all key markets and by full year 2011, we expect to see consistent evidence of better games and stronger product portfolios delivering tangible value in these markets, whether that’s improvement in average prices, higher fee per day results, stabilizing share numbers or healthier margins."

-Jamie Odell, CEO and Managing Director of Aristocrat

HIGHLIGHTS FROM THE RELEASE

2011 NA Outlook

  • Continued volatility and global markets to remain subdued.
  • Expects marginal improvement in the replacement cycle to be more than offset by fewer new and expansion units, resulting in an overall market that is slightly down in 2011, excluding any new jurisdictional openings.
  • Will focus on restoring and growing its gaming operations base on the strength of new product releases.
  • Major jurisdictional expansion and new casino openings are expected from 2012 onwards.
  • Overall operational performance for 1H 2011 is expected to be marginally lower compared to the prior corresponding period. 
  • 2H 2011 will be substantially stronger with momentum to build through further major new participation game releases and new systems modules in North America, more new product launched in Australia, and two key licensed games released in Japan. 

 

FY 2010 REVIEW

 

North America

  • Challenging year. Fewer new casino openings or expansions. There has been no significant improvement in the replacement cycle.
  • In local currency, revenue declined US$25.6 million (7.9% YoY) and profit declined US$8.8 million or 7.0% YoY.
  • Overall margin improved modestly, driven by higher ASP although this was partially offset by the impact of lower sales volumes combined with a flat fixed cost base.
  • ASP increased 2.6% YoY to US$15,054 per unit.
    • This improvement was predominantly driven by the release of the new Viridian WS and Viridian Slant Vii products. The ASP for these new products for the period was above the overall business ASP.  However, this was partially offset by customer mix. The Viridian WS and Viridian Slant Vii have become well established across the North American marketplace, with over 5,000 installations at the period end.
  • Units sold in the period declined 7.3% to 7,662, compared to market decline of ~12%.
  • Overall profit contribution to the Group from unit sales improved marginally YoY despite the lower volume of unit sales representing improved margins driven by the release of the new Viridian WS™ and Viridian Slant Vii™ products during the reporting period.
  • Sales of software conversions decreased 7.9% to 7,114 reflecting fewer MKVI game titles released to market as customers transition to the new Gen7™ platform and the Group reduces support for its MKVI platform.
  • Gaming ops installed base decreased 739 units YoY
    • Most of the churn in the installed base during the period represented products existing at the beginning of the period which declined by 1,969 units, or 31% of the opening installed base. 
    • New games - Godard’s Rockin’ OlivesTM, Big Top Jackpot, Reel Tall Tales and Kentucky DerbyTM - stemmed the decline with more than 850 units installed at the end of the period.
    • Due to the timing of regulatory approval of the new games pipeline in the latter part of 4Q (except Kentucky DerbyTM) the installed base unit numbers were not maintained. The gaming operations installed base is expected to be restored as a result of the games released late in 4Q and a continuation of product scheduled for release through the course of the 2011 reporting period.  This recovery will be led by new games developed for the VERVE HD cabinet such as Godard’s Rockin’ OlivesTM, released in 2010 and performing well above the overall average FPD, followed by TarzanTM and Mission ImpossibleTM scheduled for release in 2011.
  • Gaming ops average FPD (fee per day) from US$42 in 2009 to US$39 in 2010. The decline in FPD was influenced by the continued aging of the install base in the absence of new product releases through the period as well as the continued trend of lower operator revenues.
  • In addition to the gaming operations installed base, there were a total of 1,875 standard game leases, earning an average US$20 per day, compared to 2,335 earning US$18 per day as at 31 December 2009.  This decline was partially offset by the release of Viridian WS™ and Viridian Slant Vii™, with approximately 350 units in the field on standard leases at the end of the period.
  • Systems revenue was down 20.7% YoY with gross margins down 9.1% YoY.
  • OASIS 360 Casino Management System netted 2 new customers

Australia

  • Market conditions remained difficult in 2010, as indicated with New South Wales (NSW) showing a 10% decline and QLD a 16% decline in units shipped YoY
  • Platform unit sales reduced by 1,555 units or 29.4%, with less volume into the NSW and QLD markets, offset by an improvement in unit sales into the Victorian (VIC)/Tasmanian (TAS) market.
  • Game conversions were down 23.1% YoY

CONF CALL

  • 2011 NA outlook
    • Improved operating performance supported by new products (particularly in 2H) despite flat market
    • Maintain ship share in outright sales and improve margins from move to widescreen
    • New gaming operations product releases achieving higher FPD in 1H
    • In 2H, uplift in gaming ops installed base and FPD; New products achieving higher FPD than legacy
    • Debuting Stepper widescreen in 2H 
  • Still sees 5-year plan on track
  • Highest NA ship share in 4Q
  • Viridian commanded $1,000 price premium over other company products
  • In NA, 600 widescreen games, 30 casinos in 15 states; averaging 1.3x normal performance
  • Aging installed base contributed to gaming ops decline
  • Newer games averaging over $50 FPD
  • Australia:
    • Ship share fell 10.2% to mid 20s
    • 2011 outlook:
      • No material change in overall demand
      • Order book building steadily
      • Improve ship share and margins due to broader product portfolio tailored for Australian market
      • Ship share to mid-30s by 2H
  • Japan:
    • Improved pachislot market; but legacy product was uncompetitive
    • 4-5 new license games for 2011
    • For 2011, 25,000 total unit sales (supported by 2 key licensed games) - weighted towards 2H
  • Asia Pacific
    • Market leading share of new openings in Singapore and leader position in Macau
    • Should obtain 60% share of Galaxy Macau floor
  • Debt credit facility extended out to 2013

Q&A

  • Participation increase on floors?
    • Class III declined slightly. Not planning on casinos increasing participation games.
  • 1st time that US participation sales higher than EGM sales
  • Aging installed base will drag 1H 2011 results
  • US: 61,000 slots in 2010; 2011 will be ~60,000. Replacement cycle is relatively flat. Visibility remains poor; pleased with Q4 share but struggling in Q1.
  • Singapore: 1,000 units on floors; RWS: 34% share; MBS: just above 40% share
  • 2010 NA installed base: ended at 5,700; Rocking Olives has 500. Withdrawals coming towards end of the year for new products; placed 3,000 and withdraw 3,700 for 2010.
  • Australian market ship share: need Viridian widescreen launch to increase share; 350 new games for 2011
  • In 1H, 28 new games for New South Wales.
  • 2011 average tax rate: 28%
  • Total MKVI installed base: 100,000-105,000
  • Inventory levels will be lower in 1H 2011 with release of VERVE cabinet in NA.