Aristocrat Leisure Limited · ASX:ALL
Aristocrat Leisure — FY2002 Earnings Presentation
41 slides from Aristocrat Leisure's earnings presentation, Feb 18, 2003
Slide 1: Results for the Year Ended 31 December 2002
ARISTOCRAT LEISURE LIMITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002 - Des Randall Chief Executive Officer Lionel Jeyaraj Chief Financial Officer
Slide 2: Group Operational Structure
Group Operational Structure Customers | 1 1 : r ‘Operational pany Secratary ‘Australia | | The amencas New Zealand | Burope | | sour atnies aap Prank Bust Waren: Jowett ) MaricNOubLng: Andre Neagie: Gavin leages | ] | Deminle Barbier Steve Kame Sas | an ch o a 4 Business Dawid oa. | | ‘Leadership: “
Slide 3: What happened?
What happened? Expected Today Comments Australia 118.5 116.5 Late Approvals resulting in a delay in game rollouts ‘Americas — 9.6 55.5 Below forecast North America unit sales and non-recognition of a South American contract Japan | 26.0 / 26.7 : Japan achieved the expected sales of Kyojin-no-hoshi i
Slide 4: What happened?
What happened? * No warning on $109m . «No advice on South American contract * No warning on mix of contributions between North and South America «We were very late to the market with profit warning ¢ Three notices in three days
Slide 5: Financial Overview
Financial Overview Dec-01 Dec-02 Change 9, $m $m % Profit and Loss Total Revenue 778.0 976.5 26 EBITDA 159.6 174.0 9 EBITA 141.4 151.6 7 EBIT 133.5 137.2 3 Profit before tax 127.8 120.2 -6 Profit after tax 86.2 80.2 7 Operating cash flow (32.6) 79.0 343 Basic EPS (pre goodwill amortisation) (cents)
Slide 6: Financial Overview
Financial Overview Dec-01 Dec-02 Change Key Ratios $m $m % Revenue per employee ($'000's) 338 405 20 Profit after tax per employee ($’000’s) 37 33 “11 Gross Profit (%) 47.7% 50.8% 7 SMG8&A excl. DA 197.5 307.1 55 R&D expense 54.9 65.0 18 R&D expense as a % of revenue 7.1% 6.7% -6 EBITDA interest cov
Slide 7: Americas Business
Americas Business
Slide 8: South America — Contract timeline
South America — Contract timeline May Negotiation on sale with customer commences May/Jun Compliance on customer and country commence Aug First meeting with bank Mid Sept Verbal Ist level approval from bank on financing the deal 22 Nov Compliance Committee Approval 4Dec Customer inspection and visit
Slide 9: Ongoing Business Policy
Ongoing Business Policy * Stop deal chasing ¢ Jubilee rebuilds focus * Revenue recognition on customer payment
Slide 10: Increased Focus on North America
Increased Focus on North America
Slide 11: Business Lessons Learned
Business Lessons Learned « Revenue Shortfall ~ Product issues (approvals, performance, offer) —~ South American distraction * Margin erosion ~ Discounting to drive volume ~ Excessive warranties ~ Manufacturing overruns * Cost base not aligned to revenue « Controls and processes ~ Sales forecast inac
Slide 12: Control issues
Control issues * Timeline and accuracy of reports « Risk reviews * Early warning systems * Transparency to market « Restructure US sales force into 5 regions with sales management accountable and rewarded for regional margin & profit — objectives, measures, rewards * Review overall cost structure, f
Slide 13: USA Market — Lessons Learned
USA Market — Lessons Learned
Slide 14: Market Lessons Learned
Market Lessons Learned * Las Vegas strip — requires more unique games ~ tourist players ~ simpler games heavily themed ~ low net win, long replacement cycles (7+ years) ~ stepper dominates « Locals / Repeat player markets — our core competency ~ focus on largest and most immediate opportunity ~ high
Slide 15: Market Lessons Learned
Market Lessons Learned | « Product compromise severely impacts sales volumes ~ MKV timing issue « Increased importance of IP protection ~ cashless issue was expensive and a distraction ~ utilise game IP ~ i.e. Hyperlink, Reel Power, BonusBank « Build on MKVI success — launched September 2002 ~ excep
Slide 16: Actions from Australia
Actions from Australia ¢ Increased development of games for North America ~ productivity gains directed 100% to US product — titles and themes specifically targeted at US (killer category) — continue building games libraries from Australia * Strengthen US recurring revenue product range ~ Hyperlink
Slide 17: Actions from Australia
Actions from Australia * Platform & Engineering focus — MAV500 upgrades (new XP board) — stepper upgrades — enhanced theming / packaging * Xcite launch — G2E 2003 — leverage Australian success — target recurring revenue segment with proven premium product offer — Feature Top Box, BonusBank, Hyperlin
Slide 18: Actions from North America
Actions from North America * Increased R&D effort in the US — games — 2003 games budget significantly increased — 16 US developed titles — stepper and poker centre of expertise — Tucson ¢ Strengthen US recurring revenue product — range — 1% time licensed products for the US > Card Sharks (Hyperlink
Slide 19: Actions from North America
Actions from North America * Poker — 6 new games to be released in 2003 ~ ~ all developed in the US ~ Hyperlink poker to be released « Mikohn — 2 phase agreement ~ leverage Aristocrat’s service and infrastructure ~ deploy themed Mikohn games on Aristocrat platform — all recurring revenue * VLT strat
Slide 20: Review of Other Operations
Review of Other Operations
Slide 21: Australia
Australia * Increased market leadership in Australia * Grew revenue in difficult market * Record result for core platforms, games and systems business « Decrease in VACA business * Successful launch of Xcite cabinet nationally * Record number of games launched * Services business impacted by discont
Slide 22: Australia
Australia Revenue Sales Service Gross Profit Sales Segment Contribution Profit Sales Service 2001 2002 Full Year Half 1 Half 2 Full Year 299.7 155.2 166.5 321.7 48.7 18.8 18.5 37.3 161.8 86.8 96.8 183.6 54.0% 55.9% 58.1% 57.1% 108.5 55.6 65.9 121.5 12.5 (0.7) (4.3) (5.0)
Slide 23: Australia
Australia 2001 2002 Sales Revenue NSW / ACT 189.9 188.0 VIC / TAS 32.4 47.4 QLD / NT 54.9 64.0 . SA/WA 22.5 22.3 Sub-Total 299.7 321.7 Service Revenue 48.7 37.3 Total Revenue L 348.4 359.0
Slide 24: Australian Objectives 2003
Australian Objectives 2003 * Increase market share * Maintain or reduce expenditure * Maintain revenue * Provide the highest performing products and services to the markets * Be recognised as the leading supplier of gaming solutions * Reduce warranties from 26% to 23% of paid conversions * Increase
Slide 25: Slide 25
Slide 26: Japan
Japan * Increase in unit sales to 37,883 * Significantly expanded local R&D *« Developed 8 new games * Invested in direct sales force (now>40) © ¢ Voluntary machine buy back ¢ Volatility/regulator issues * Moving towards independent business model « Acquired minority 40% interest in Hanbai
Slide 27: New Zealand
New Zealand * Maintained largest share of market . - 45% overall (44% hotels/clubs, 60% casinos) ¢ Difficult market for platform sales due to uncertainty about Responsible Gambling Bill . * Conversions market good « MK VI (May), Mr Cashman (August) and Hyperlink (Q4) all launched during 2002
Slide 28: Europe
Europe * Strong growth off small base * Now in 29 jurisdictions ¢ Hyperlink launched in 2002, Xcite to be launched in 2003 * 11 out of 12 Holland Casinos have Hyperlink banks ¢ Russian distributorship agreement * Exploring opportunities for UK following Queen’s Speech
Slide 29: South Africa
South Africa ¢ Difficult market and economy ¢ Hyperlink and Mr Cashman launched during 2002 ¢ Limited Payout Market expected to open soon
Slide 30: Asia Pacific
Asia Pacific « Upgraded focus in 2003 - Macau - Vietnam - Thailand ¢ Hyperlink, Mr Cashman and Xcite all launched in different countries
Slide 31: Financials
Financials
Slide 32: Key Shareholder Value Matrix Months to 31st December 2002
Key Shareholder Value Matrix 12 Months to 31st December 2002 4. PLATFORMS Total units sold (excluding initial software) Platform sales - average price (SAUD) 2. SOFTWARE Games & conversions - No. of units Games & conversions - average price (SAUD) 3. SYSTEMS Total new units connected Average dollar
Slide 33: Key Shareholder Value Matrix Months to 31st December 2001
Key Shareholder Value Matrix 12 Months to 31st December 2001 4. PLATFORMS Total units sold {excluding initial software) Platform sales - average price ($AUD) 2. SOFTWARE Games & conversions - No. of units Games & conversions - average price (SAUD) 3. SYSTEMS Total new units connected Average dollar
Slide 34: Segment Contribution Profit, EBIT & EBITDA
Segment Contribution Profit, EBIT & EBITDA omy Finete sees ryybes North South Japan 7 sion chee Etimin / Year Ended December 2002 AMeciea Region [2 Bes ou Corporate ‘Fotal Revenue (excluding interest) 493.4 294.1 38.4 Bx -33 $1.4 46.5 Revenue eliminations (434.7) ‘Total Revenue (excLinterest & act o
Slide 35: Group Balance Sheet Notes
Group Balance Sheet Notes Cash Receivables Investments Inventories Other Current Assets Receivables Investments Inventories Property, Plant & Equip Intangibles Deferred Tax Assets Non-Current Assets Total Assets AS'000 A$'000 AS$'000 Dec 2001 | Dec 2002 [M'ments 15,024 70,291 35,267 302,059 338,648
Slide 36: Group Balance Sheet Notes
Group Balance Sheet Notes AS$'000 AS00060 AS'G00 Lee 2002 [ Dec 2001 _[ Mtments_]| Accounts Payable 295,106 171,856 (123,250) Borrowings 8,856 49,537 40,681 Current Tax Liability 9,239 42,973 33,734 Provisions 50,271 56,447 6,176 Other - - - Current Liabilities [363.473 [320,813 [| (42,659)] Account
Slide 37: Cash Flow and Working Capital
Cash Flow and Working Capital Dec-01 Dec-02 Change % AS mil A$ mil Operating cash flow (32.6) 79.0 342% % of revenue ~4A2% 8.1% 293% Less capital expenditure G54) (41.7) 18% Free Cash Flow (68.0) 37.3 155% Working capital* 2718 249.6 8% % of revenue 34.9% 25.6% -27% Inventory 141.6 206.1 46% % of re
Slide 38: Actions to improve controls
Actions to improve controls * Greater rigor and focus on Sales qualification and forecasting * Leverage Australian Quote to Cash process to Americas * Risk & Disclosure committee formed * Immediate action will be taken to strengthen the Administration team in the US. * Step up internal audit * Incre
Slide 39: 5-Year Summary
5-Year Summary Revenues 1998 1999 2000 2001 2002 Net Profit After Tax. 1998 1999 2006 2001 2002
Slide 40: Appendix
Appendix
Slide 41: Restated Half Year June 2002 Segment Contribution Profit
Restated Half Year June 2002 Segment Contribution Profit. $000 Half Year 2002 Total Segment Revenue from ordinary activities (excluding interest} Interest Revenue Total Revenue Segment result (profit from ordinary activities before interest and tax) Net Interest Total Profit Before Tax Segment Contr