Aristocrat Leisure Limited · ASX:ALL
Aristocrat Leisure — Investor Presentation (March 2005)
88 slides from Aristocrat Leisure's investor presentation, Mar 8, 2005
Slide 1: Presentation to Analysts and Investors in Tokyo, Japan
PRESENTATION TO ANALYSTS AND INVESTORS IN TOKYO, JAPAN Sydney, & March 2005 Aristocrat Leisure Limited (ASX; ALL) today gave a presentation to analysts and investors in Tokyo, Japan. The presentation provides information on our Japanese operations and the Japanese gaming market. A copy is attached.
Slide 2: Welcome Investors and Analysts
Welcome Investors and Analysts Tokyo, Japan 8!" March 2005 This document should be read in conjunction with the disclaimer included herein
Slide 3: Japan Snap Shot
Japan Snap Shot Rob McLoughlin International Operations Japan
Slide 4: Staff Introduction
Staff Introduction Toshio Yoshimatsu — President Takao Morita —- GM Finance Yoshio Suzuki - GM Operations Hiroyuki Sasaki - GM Marketing Hirohisa Tokiwa — GM R&D — Hardware Tetsu Toi — GM R&D — Software Noriko Koda — Manager HR/ Compliance
Slide 5: Agenda
Agenda Definitions The Sequence of Events The Product The Market Aristocrat Business Model Performance Opportunities Vision Questions
Slide 6: Definitions
eoeee Nichidenkyo NDK NDT NPA SECTA NPSE PPSC Pachisuro Pachislo Pachislot Pachinko Keihin Kokanjo Nikkoso Nichiyukyo Definitions — Pachislot Manufactures Association = uW Ww “W Ww — Nihon Dendo (NDK patents company) — National Policy Agency — Security Electric Communication Technique — Association
Slide 7: The Sequence of Events
eo @ @© © @ @ Apr 1993 Jun 1994 Dec 1998 Apr 1999 Sep 1999 Jan 2000 Feb 2000 Jun 2000 The Sequence of Events Tasked with acquiring gaming approval in Japan Lodged application NDK Board Approval received Approval commences First employee hired Manufacturing agreement signed with Sammy Corporation in
Slide 8: The Sequence of Events
eo e @ ee @ Jul 2000 Aug 2000 Oct 2000 Nov 2000 Dec 2000 Sept 2002 The Sequence of Events First Game “X-One” submitted — “sacrificial” All systems implemented Signed Agents Lodged game “Triple Shooter” Submitted 48 Prefectural Approvals Employed Sales Staff Game 1 Submission rejected Game 2 approved
Slide 9: The Sequence of Events
The Sequence of Events DELIVERIES COMMENCED 21st JANUARY 20071... 15 MONTHS AHEAD OF SCHEDULE
Slide 10: The Product: What is Pachinko?
The Product What is Pachinko? * Electro mechanical device * Ball bearing operated * May incorporate LCD screen * Similar in size to pachislot * High skill level required * Prize redemption external of venue * Conveyer systems cleans, dries and supplies ball bearings directly to machine * Have existe
Slide 11: The Product: What is a Pachislo?
The Product What is a Pachislo? ee @ ee @ ee @ @ 3 or § Reel stepper (electro-mechanical) 3 skill stops Token operated Up to 8 RTP% options (some over 100%) Prize redemption external of venue Conveyer system cleans, dries and supplies tokens directly to machines Approximately 850 venues are 100% Pac
Slide 12: Kyojin-no-hoshi
“Kyojin-no-hoshi” The Product eee ee Primary game on 3 Main Reels Secondary game on 2 outer % width reels Incorporates a game “Navigation System” Really does require skill Developed from “Manga” comic book hero Licensed product 4 Art Clone iterations One of the most successful games in the 2003 Mark
Slide 13: The Product
The Product * 3 Reel stepper * Incorporates a 7” LED screen * Licensed from “Speed boy” character * Screen animation by external designer — Banpresto * Designed in-house « Over 40,000 units delivered in 2003 * “One shot game”
Slide 14: Legalised gaming — US$1,000bn & increasing
Legalised gaming — US$1,000bn & increasing... Oe oe Asia {incl China) — Uss655 Japan — USs290b Legalised gaming ~ ail forms of gaming under ' a government regulatory requirements & licensing - - Pie a my
Slide 15: Legalised gaming — the biggest sectors are...
Legalised gaming — the biggest sectors are... Global Gaming Total Value $1,000 bn 15% 4% 10% 6% Totes / Fixed Odds @ZSporis OCasinos OStreet MLotteries Other * 65% of the total value of legalised gaming is channelled through to casinos and the street market + In emerging countries, lotteries are typ
Slide 16: Legal Gaming Per Capita
Legal Gaming Per Capita Gaming Population Gaming (US$ bn) (Millions) Per Capita (US$) Japan 290 127 2,283 TOTAL 958 6,273 153 *On a per capita basis, Japan is by far the largest, followed by Oceania and North America *US$15 per capita average increase globally would add US$100bn to the total gaming
Slide 17: Significant potential over the next years
Significant potential over the next 20 years Current Gaming (US$ Bn) Annual GDP Growth % Annual Population Growth % 2024 Gaming (US$ Bn) Japan 290 1% 0.1% 405 Source: world bank 2004 data and forecasts Scenario analysis using: - annual GDP growth and population growth projections. The continued prol
Slide 18: The statistics (gaming turnover)
The statistics (gaming turnover) Totes / all figures in US$bn Fixed Odds = Sports Casinos Street Lotteries Other Total 1 Japan 34.4 \7.4 - 228.8 9.4 . 289.5 Source: GBGC 2002 Annual Review *EGM’s account for c.75% of the total (slots, AWP’s, VLT’s, FOBT’s, Pachinko, Pachislot) *Casinos and street ma
Slide 19: Which sectors are growing?
Which sectors are growing? Sector Japan Casinos + Promuigation of casino bill (destination casinos) + 2007+ timeframe *50,000+ siots Routes / Gaming + Pachinko market is large but has machines slow growth + Pachislot may be impacted most by Reg 5 in the medium term Lotteries/ VLTs + Traditional ‘ott
Slide 20: Japan in the Global Market
Japan in the Global Market Warning: ¢ Accurate Statistics are difficult to acquire. ¢ Must be understood in context.
Slide 21: The Market
The Market ¢ Pachislo/ Pachinko — Operate under “Food and Entertainment Law’. Note: For the purpose of this briefing — consider as gaming machines
Slide 22: Horse racing
Horse racing . « Slow decline se * Bicycle, motor bike, motor boat « Substantial decline ticyle, rotor bike, motor boat expendkure (8) 1990 1991 1992 1993 1994 1905 1995 1997 1998 1999 7O00 200% 2002 2003F 2on4e 200SF aA Bicycle (HS) [EEE Motor baat (LHS) EEE Motor bike (LHS)
Slide 23: Pachinko & Pachislo (Yen Trillion)
Pachinko & Pachislo (Yen Trillion} 60 50 ag 20 20 10 1992 1993 1994 1995 1996 purchase of Pachinke balls 1998 purchase of Pacirisio medals * Pachislot/Pachinko substantial growth 1999 2000 2001 2003F 20047 2005F Source: Yano research Japan « Stable growth + Constant new entrants Lottery sales (Yen B
Slide 24: Regulatory Structure (Pachislo)
Regulatory Structure (Pachislo) National Public Safety Commissioner National Police Department Prefectural Public Safety Commissioner Metropolitan/Local Prefectural police Department Regulations are formed at the national level and enforced by the police at the regional or local level Security Elect
Slide 25: Associations (Pachislo) Industry
Associations (Pachislo) Industry Zenshokyo Kaidoyugho H Distribution | ---------}-4---------- == 4 = « While appearing complex, the major industry association is the NDK
Slide 26: The Market — Structure
The Market — Structure Between 19 to 23 Pachislo Manufacturers at one time Two foreign: — Aristocrat — IGT Controlled by the National Police Agency Mandatory membership of Manufacturers Association - NDK NDK has subsidiary Patents company NDK sells official seals to manufacturers Seal income is dist
Slide 27: The Market (Tier 2 and Tier 3)
(Tier 2 and Tier 3) The Market « Three Tier 1 manufacture vs other Sammy group Sammy Rodeo Aristocrat IGT Aruze Group Aruze Electro-coin Japan Macy Mizuho Others Tier 2 Tier 3 « The industry is consolidating and large groups are forming which tend to dominate the market.
Slide 28: Units: Japanese Amusement Machines Historical Data
Units 4,500,000 xy 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 4,800,000 4 | #,000,000 500,000 0 19 Japanese Amusement Machines Historical Data 1994 19 1 200 20 2 2003 (amma Pachistot (3. 695,782 700,332 781884 880,000 1,004,642 1,439,385 1,328,729 4,459,233 4,808,123 1,680,839 [EEE Pachinko 1
Slide 29: The Market: World installed base 2004
The Market World installed base of gaming machines - 2004 Japan - Pachinko Japan - Pachislo North America Australia South America Europe NZ Aftica Asia i | | | | | | 0 500000 FO00000 £500000 2600000 2500006 3000000 3500000 Number of installed machines There are 20 times the Japan has over 80% of the
Slide 30: The Market: Installed base of Pachislo in Japan
The Market Installed base of Pachislo machines in Installation Units. Japan to 2005 ® Fd + i~J 1,800,000 } 1,600,000 a o 1,400,000 28 o N 1,200,000 oo 1,000,000 > t ‘ a 800,000 x | 2 600,000 + ; 400,000 | 200,000 o SP PED OD PPA OD OK e - There has beena history of impediment to Market growth «In pa
Slide 31: 2004 Estimation
2004 Estimation Manufacturer Units 1. Sammy 605,000 2. Diato 230,000 3. Olympia 215,000 4. Yamasa 140,000 5. Kita Ele. 90,000 6 Aruze 70,000 7. Aristocrat 55,000 8. Sankyo 50,000 Other (less than 2%) 145,000 TOTAL 1,600,000 «Estimation of Installation units at end of 2004.
Slide 32: Pachislo Slot Market Share
Pachislo Slot Market Share The Market @ Sannry mAruze 0D Yamasa D Olympia @ Aristocrat B Others 120.00% 100.00% 80.00% 60.00% 40.00% Aristocra 20.00% 0.00% isso 2000 2001 2002 2003 2004 (est) m@ Samry 7.80% 13.50% 30.20% 28.40% 26.50% 38.40% mAruze 39.60% 36.30% 16.70% 19.80% 19.00% 4.50% 0 Yarmasa
Slide 33: The Market: Pachislo Slot Market Share
The Market Pachislo Slot Market Share 1999 2000 2001 2004 Est. Aruze 39.60% | 39.30% 16.70% 4.5% Sammy 7.80%| 13.50% 30.20% 38.4% Sammy — 3 years, 4 fold increase Aruze — 3 years, over 50% decrease Japan market is volatile!
Slide 34: The Market — Structure
The Market — Structure 30 million players - 33% of adult population 15,500 locations (18,500 in 1995) ¥700,000 pa expenditure per player Installation statistics: — 320 machine average per hall — 4% less than 100 — 78% 100-300 — 17% 300-500 — 1% greater than 500 - expanding : * Industry is 1.5 times
Slide 35: Markets
Markets - Japan is four (4) distinct markets Eastern Japan Western Japan Osaka (delayed decision process) Okinawa (30 Pai token)
Slide 36: Aristocrat Business Model
Aristocrat Business Model 1 hour Permanent staffing — end January 2005 Administration 2 Finance 5 Operations 11 Sales Agent 10 Direct 5 Marketing 5 ac 2 18 2 R&D IT. TOTAL 60
Slide 37: Aristocrat Business Model
Aristocrat Business Model * Highly focused team effort ¢ Associate with world class companies ¢ Multiple Creative centres — internal/external (as required) ¢ Multiple Distribution channels — Direct — Agent (Area specific) — Agent (National chain) ¢ Integrate — do not manufacture ¢ Maintain 100% “plu
Slide 38: Aristocrat Business Model
Aristocrat Business Model Deliver a product range that allows Aristocrat to be competitive in any area in Japan. — Increase range to cover all geographic regions, all gaming categories and all price ranges. Provide flexibility to respond to an increasingly dynamic market place. — Built an organisati
Slide 39: Aristocrat Business Model
Aristocrat Business Model Marketing Product -3 and 5 reels - LCD 7 inch, *% screen, full screen. Pricing - ¥ 350,000 — ¥ 400,000 Promotion - Deliberate product “leak” - Media release - Agent release (Tokyo, Osaka, Nagoya) - Direct release (Tokyo, Osaka) -P.O.S. - Internet - Mobile phone network Dist
Slide 40: Aristocrat Business Model: Key Strengths and Weaknesses
Aristocrat Business Model Key Strengths and Weaknesses Commitment to R & D — over 1/3 of staff Strategic alignment — Sammy Corp and others Product range — leading edge Reputation — Excellent Geographic coverage — Expanding — Osaka sales office Operational efficiency — Constant improvement Key relati
Slide 41: Aristocrat Business Model — focus 2005
Aristocrat Business Model — focus 2005 « Further develop Sammy relationship — currently excellent * Protect Revenue and profit position * Reduce cost — Product « ¥10,000 multiples * Modularisation * China components — Operations + Grow Margin ¢ Expand into alternative Revenue streams e.g. — Casino 2
Slide 42: Decision Process
Decision Process * Research Conception— Submission Approval Release— Installation 4 month 6-9 months 3 months 3 months 2 months * 12-18 month process « Build then sell « Unsold inventory is standard business risk * Key decision points * Submission + Release
Slide 43: Performance 2004
Performance 2004 ” « Released “Daruma neko in April * Sold 31,793 units « Game ranked 7 of 35 nationally. « “One shot game”
Slide 44: Kyojin no hoshi
Kyojin no hoshi 2 Released Kyojin no hoshi 2 in August 2004 2"¢ in series Sold 41,245 units Kyojin no hoshi 1 — 1% 5 reel game — Aristocrat holds patent Game ranked 6 of 35 nationally Still selling today Kyojin no hoshi 1 ranked no. 1 for 9 weeks.
Slide 45: Performance
PERFORMANCE OBJECTIVE: TO DEVELOP AS - A MAJOR FINANCIAL POWER HOUSE FOR ARISTOCRAT * From January 2001 presentation to Board and Executives
Slide 46: Segment Revenue Split
Segment Revenue® Split 2003 Segment Revenue by region Australia 30% North America 23% * Revenue excluding interest * 2003 results are pre one-off adjustments 2004 Segment Revenue by region Australia 25% North America 32%
Slide 47: Segment Contribution Profit Split
Segment Contribution Profit* Split 2003 Segment Contribution Profit by region Australia M% Nth America 4% * Excludes unallocated expenses, interest and tax pre one-off adjustments * 2003 results are 2004 Segment Contribution Profit by region Australia 30% Nth America 32%
Slide 48: Performance: How did Japan perform?
Performance How did Japan perform? FY 2001 2002 2003 2004 Consolidated Units 34,004 | 37,883 83,687 85,387 240,961 Revenue 136.1m] 180.8m|] 360.7m 336.8m 1,014.4m Field Objective: “Bust the Billion Barrier in 2004”
Slide 49: Key Statistics
Key Statistics 2001 2002 2003 2004 « Revenue declined 6.6% . : P 3 Games Sold (units) 34,004| _37,883| _83,687| 85,387 Profit declined 10.8% « Unit sales increased 2% Total Revenue per unit (A$) 4,006 4,787 4,310 3,944 Staff Numbers (FTE at 31 Dec) 30 37 48 61 Revenue per FTE (AS) 4,541,100 | 4,904,
Slide 50: Performance - Opposition
Performance - Opposition 2004 Competitive Environment: « Sammy sold almost 600,000 “Hokuto-no-ken” ~ Plus delivered 50,000 in Q4 2003 — Total 630,000 units « Rodeo sold approx. 200,000 (Wholly owned Sammy brand) « 800,000 equates to almost 50% of sales in 2004
Slide 51: Opportunities going forward
Opportunities going forward ¢ Pachislot- Build on success ¢ Casino — Substantial opportunity » Est. in Japan » Approved manufacturer » No. 2 World casino supplier » Casino bill Q1/2005 * Pachinko — Reviewing ¢ |. Mode — Develop business ¢ Play station 2 — Develop business ¢ Amusement — Develop busin
Slide 52: Samurai Rules
N OARoON- 7 Samurai Rules A Japanese Samurai wrote a textbook for survival titled “The Book of Five Rings”, first published in 1645 Miyomato Musashi’s counsel is particularly appropriate when adopted, adapted and applied to today’s turbulent economic climate. Musashi taught the following strategy: S
Slide 53: Vision
Vision ¢ Build on success in Japan
Slide 54: Japan Business Review
Japan Business Review Toshio Yoshimatsu 8th March 2005
Slide 55: Japan Gaming Market Overview
Japan Gaming Market Overview
Slide 56: Recreation Industry in Japan
Recreation Industry in Japan Category 2002 2003 Yearly Change 1. Sports Market size (billion yen) 4,538 4,467 1.6% 2. Hobby Market size (billion yen) 11,696 11,493 -1.7% 4. Tourism Market size (billion yen) 10,813 10,459 3.3%
Slide 57: Leisure Industry in Japan
Leisure Industry in Japan (Billion Yen) Category 2002 2003 Yearly Change 2. Food and Beverage 18,081 -1.5% 2. Gambling 7,169 6,768 5.6% 4. Karaoke 415 376 9.4% Total Leisure Business 56,079 55,736 -0.6%
Slide 58: Country Demographics
Country Demographics Highlights over 18’s Total Market 90 Million people KKAT focus — 30-50 Age group amee | Other Manufacturers ZA Female y focus on under 30’s 0 5 to 15 20 Population (Million)
Slide 59: Breakdown of a Player's Age
Breakdown of a Player’s Age Pachi-slot Players % Age Male __ Female __Total Under 20 6.7% 2.5% 5.5% 20 - 29 39.0% 35.0% 37.8% 30 - 39 28.2% 28.8% 28.3% 40 - 49 14.2% 12.5% 13.7% 50 - 59 8.0% 14.4% 9.9% 60 - 69 3.6% 6.3% 4.4% Above 70 0.3% 0.5% 0.4% 100.0% 100.0% 100.0% Average Age 34.0 37.3 34.9
Slide 60: Leisure spend
Leisure spend YEN Stage Age Pocket Money per Month *Late teens 18~19 12,700 *Freetor 20~34 36,800 “Young Family Heads 30~40 21,500 *Working Mother 30~ 25,800 *Pre-Retirees 55~57 32,300 *Retirees 60~ 45,700 *Post-Retirees 70~ 33,400
Slide 61: Number of Pachi-slot players
Number of Pachi-slot players i A2 O3 o4 “1. Current Player 17M *2. Potential Player 24M *3. Interested Player 19M *4. Uninterested 28M
Slide 62: Key Assumptions (R5)
Key Assumptions (R5) Pachinko & Pachi-slot - Short time check (1 hour) of payout medals - 10 hours check of payout medals - Long time check (17,500 games ) of Payout Only for Pachi-slot - Simulation test (1hour / 10 hours / 17,500 games ) = Disadvantage for Pachi-slot Industry
Slide 63: Pachi-slot Business
Pachi-slot Business
Slide 64: Customers' payment flow
| Exel ion _by SECTA. | [zineasts | Following Month End
Slide 65: Development Process
bh wo ND a Development Process . Research & Analysis *1. Development Plan, *2. Market Research, *3. Analyze Competitor . Make planning and project *4. Make a selection of the subject, *5. Draw up a plan . Confirmation of plan *6. Confirmation of the documentation for the pian . Prototype “7. Basic D
Slide 66: SECTA & Police Agency
SECTA & Police Agency SECTA 1 | 12 Public Safety} +*3 Commission *4 *7 — se Police Office | *9 *5 —_——_> ——> Halls *8 1 x 6 *1 Submit New Game machine to SECTA *2 Waiting for approval from SECTA *3 Register the machine to 50 prefectural office *4 Received a Notice of approval *5 Send the Agreement *
Slide 67: Production Process
Production Process Sales Plan Production Plan _ Import Parts | Parts Inspection Domestic Parts — Units Kit | Assembling Finished Body Inspection | Sorting Out Each Halls Packing ! Receiving Main Boards Inspection of Main Board — | Delivery to Hall |
Slide 68: Sales Networks
Sales Networks ¢ Direct Sales 10% ¢ KK Trade 30% (Nationwide) ¢ Agent * Big Client of Hall ¢ Strong tie up Artcherry Club 15 Agents
Slide 69: Current Market Status
Current Market Status Trend towards large screen LCD games Increase games with Manga cartoon (Popeye etc.) No manufacturers have approvals of Reg. 5 games. Manufacturers looking to maximise remaining Reg. 4 games.
Slide 70: Key Strategies
Key Strategies * Targeted Market Sector — 30 to 60 age — Less “fad” driven * R&D Enhancement — 3 teams to 4 teams ( Increase submissions to SECTA) — Shift from 5 reels & Dot matrix type machine to LCD * Maintain Collaboration with Sammy + Marketing Enhancement — Shopping for Characters (Animation/ C
Slide 71: Breakdown of a Player's Age
Breakdown of a Player’s Age Pachi-slot Players % Age Male __ Female __Total Under 20 6.7% 2.5% 5.8% 20 - 29 39.0% 35.0% 37.8% 30 - 39 28.2% 28.8% 28.3% 40 - 49 14.2% 12.5% 13.7% 50 - 59 8.0% 14.4% 9.9% 60 - 69 3.6% 6.3% 4.4% Above 70 0.3% 0.5% 0.4% 100.0% 100.0% 100.0% Average Age 34.0 37.3 34.9
Slide 72: Leisure spend
Leisure spend YEN Stage Age Pocket Money per Month sLate teens B19 12,700 *Freetor 20~34. 36,800 *Young Family Heads 30~40 21,500 Working Mother 30~ 25,800 *-Pre-Retirees 55~57 32,300 «Retirees 60~ 45,700 *Post-Retirees 70~ 33,400
Slide 73: Game Software Ranking
Game Software Ranking Rank Game Title (in te d)* 1 Dragon Quest 30,000 2 Final Fantasy 22,532 3 Street Fighter 13,000 4 Rock Man 9,600 5 Powerful Professional Base Ball 9,430 6 SIMPLE Series 9,110 7 Super Robot War 8,630 8 SaGa 8,600 9 Bio-Hazard 8,500 10 SIMPLE 1500 Series 8,060 11 Play King Duel M
Slide 74: Weekly Magazine Ranking
Weekly Magazine Ranking The number of Rank Book Title Publisher . copies 1 Weekly Shonen Jump Shuesha 2,994,897 2 Weekly Shonen Magazine Kodansha 2,721,633 3 Colo Colo Comic Shogakukan 1,198,333 4 Weekly Shonen Sunday Shogakukan 1,160,913 5 Weekly Yung Jump Shuesha 1,136,666 6 Young Magazine Kodansh
Slide 75: How to Penetrate Market
How to Penetrate Market * Concentrate on Market Segment * Maintain art clone iterations * Technology leader * Same time communication * Logistics Efficiency * One-Shot Delivery and Quick installment of Machines to Halls « IT Linked Directly with Big Pachinko Halls (Receiving Orders)
Slide 76: Plan 2005 Summary
Plan 2005 Summary * Continued success with Street Fighter 2 and other games « Market uncertainty due to the effects of Regulation 5 «Planned submission Regulation 5 game * Focus on market penetration through competitive market sector games « Maintain collaboration with Sammy Corp * Improve geographi
Slide 77: New Business Opportunity
New Business Opportunity
Slide 78: CASINO Business
CASINO Business * A Joint Committee, cooperation of 106 LDP and 68 DPJ members. —Symposium - November 2004 —A draft of the Casino Law will be prepared based on each agency & ministry in the government. Current Target: To start Casino in Japan in year 2007
Slide 79: People's Interests in Casino
People’s Interests in Casino Having an interest in Pachinko/Pachi-slot 15.8% Having an interest in both Pachinko/Pachi- slot and Casino 19.9% No interests in Gaming 53.8% New Market
Slide 80: Management Philosophy
Management Philosophy ; * Speedy Action & Concentration * Timely Decision ¢ Strong Leadership * One Company One voice
Slide 81: KKAT Motto
Slide 82: Finance Review 8th March 2005
Slide 83: Key Financials
Slide 84: Key Statistics
Slide 85: Competitors' review in 2004
Slide 86: Customers' Payments
Slide 87: Risk Management
Slide 88: Disclaimer
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