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Edited Transcript of ALL.AX earnings conference call or presentation 23-May-19 3:00am GMT

Half Year 2019 Aristocrat Leisure Ltd Earnings Call

NSW Jun 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Aristocrat Leisure Ltd earnings conference call or presentation Thursday, May 23, 2019 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Julie Cameron-Doe

Aristocrat Leisure Limited - CFO

* Matthew Wilson

Aristocrat Leisure Limited - MD of Americas

* Trevor J. Croker

Aristocrat Leisure Limited - CEO, MD & Director

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Conference Call Participants

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* Anthony Longo

CLSA Limited, Research Division - Research Analyst

* David Fabris

Macquarie Research - Research Analyst

* Donald N. Carducci

JP Morgan Chase & Co, Research Division - Analyst

* Kane Hannan

Goldman Sachs Group Inc., Research Division - Research Analyst

* Larry Gandler

Crédit Suisse AG, Research Division - Director

* Mark Wilson

Deutsche Bank AG, Research Division - MD, Co-Head of Company Research Australia & NZ and Analyst

* Matthew H. Ryan

UBS Investment Bank, Research Division - Executive Director and Research Analyst

* Nicholas Caley

Baillieu Holst Ltd, Research Division - Research Analyst

* Sacha Krien

Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Aristocrat half year results briefing. (Operator Instructions)

I will now like to hand the conference over to Mr. Trevor Croker, Chief Executive Officer and Managing Director. Please go ahead.

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [2]

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Okay. Welcome to Aristocrat Leisure Limited financial results presentation for the 6 months to 31 March 2019. My name is Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. It is a pleasure for me to be presenting today along with Julie Cameron-Doe, our Chief Financial Officer. Thank you all for joining us. Before we begin, please note the usual disclaimer statement on Slide 2. Turning now to our agenda on Slide 3. Today, we'll spend some time recapping Aristocrat's strategy and updating you on our progress, particularly with respect to our digital business before speaking to result highlights for the reporting period. We'll then move onto our expectations for the 2019 fiscal full year before opening the line to Q&A.

For clarity, all references to prior corresponding period or PCP represent the 6 months to 31 March 2019. Normalized results refer to the reported results excluding the impact of certain significant items and adjustments as set out in the review of operations document.

Turning first to strategy. Aristocrat is all about delivering superior, sustainable profit growth. We deliver this primarily through organic growth in existing markets and via tapping selected adjacencies accelerated by M&A. This slide is one we've shared before. It summarizes our operating model, which has been a key part of our strategic playbook over the last decade and continues to underpin our approach today. Our initial focus has been driving growth through adjacencies in our land-based business. Over the last 18 months in particular, we deliberately brought a similar approach to digital as evidenced by our move into social gaming adjacencies with the acquisition of Plarium and Big Fish.

Our results for the half year to 31 March 2019 reflect our progress in executing the strategy in line with our expectations and previous commentary, we're in an earlier point in the implementation of digital in our land-based businesses. We continue to see pleasing progress across our portfolio and more opportunity to unlock benefits across our digital business and between land-based and digital operations as our capabilities grow.

In terms of our land-based business on Slide 5, investors may remember that in 2014, we served only 65% of the outright sales market in North America. Now onto video segment. Our first priority was share-taking within this segment through effective segmentation, recruiting outstanding talent, investing in content and technology and improving front-end execution. In other words, we focussed on what we could control to drive share. This is another common theme that unites our approach to growth across all parts of our business. In the same year Aristocrat had 9,000 recurring revenue games operating in commercial and Indian tribal casinos, representing 6% of the North American market.

In financial year '15, we made a USD 1.3 billion acquisition, bringing in BGT, which gave us a significant 20,000 unit, 100% recurring revenue footprint in Indian tribal casinos and was also highly cash generative, facilitating further investment back into the business to accelerate momentum. Over the last 4 years, we've also invested organically in top-performing and broader product portfolio to grow into new segments in North America, including in gaming operations; Class II video, which offers further choice to Indian tribal casino customers; the mechanical, real or stepper market across both gaming operations and outright sales; the video lotteries terminal market, commonly referred to as VLT, which is a business-to-government or B2G market; the Washington Central Determinant System or CDS market; and finally, the bar-top Poker market. As a result of these investments, we anticipate being able to commercialize products across around 96% of the North American outright sales market and 80% of the recurring revenue market by the end of 2020, underpinning our ability to sustain high-quality growth going forward.

We'll refer to our progress across these identified adjacencies later in the presentation. As I mentioned, we are applying a similar approach in digitaland will now turn to Slide 8.

For clarity, all amounts referred to in the next 2 slides on digital are in U.S. dollars. In 2013 financial year, we made a $30 million acquisition of the social casino business, Product Madness, providing us with the capability to deliver games over social platforms, which at the time was largely Facebook. We sparked a wave of growth in the business by leveraging the power of our leading-back catalog casino titles, effectively creating a new monetization channel for our land-based content and creating a powerful adjacency. While the social casino market grew by 21% CAGR over the past 6 years, we've grown Product Madness at 77% CAGR and built a firm foothold in the social casino market. At financial year '14, Product Madness' daily active users or DAU averaged 625,000. Today, that figure is over 2 million. Similarly, monetization levels measured as average bookings per daily active user or ABPDAU have grown from $0.20 to now well over $0.50.

At the same time, however, we were always aware that social casino represented only a fraction of the total social games opportunity, and our growth would fall away over time if we didn't do anything. That is clearly demonstrated on the slide, with social casino representing only $4.2 billion within a broader addressable market opportunity of around $32 billion. Consistent with our strategic playbook, we have since used our foothold and are now increasing digital capabilities and experience to begin to attack significantly larger adjacent segments and genre of opportunities over the last 18 months.

As a result of our addressable, mobile digital market has expanded from around $5 billion 18 months ago to around $32 billion of a $50 billion-plus opportunity today as we have expanded into genres you see on the slide. We have reached this point in terms of our strategy in digital several times faster than we did in our land-based business, underlining both the speed of this market and the benefit of experience and leveraging our proven land-based strategy.

Given we began this next phase of growth in digital relatively recently, I'll quickly touch on the progress made, key capabilities and areas of focus since our last update.

Turning to Slide 9. We've brought our digital operations under common leadership, bedding down 2 significant acquisitions and implementing common processes. We've also been encouraging value-adding [cost] collaboration while preserving appropriate autonomy to where the 3 digital businesses maintain their culture, agility and entrepreneurial spirit. We believe we now have the ingredients required to fuel the next phase of organic growth in digital. This is set out in the boxes on the left-hand side of this slide, starting with world-class game design and talent. We now have capability in our core genres of social casino, social casual and strategy, and skills and incentive to enter fast-growing adjacent genres like RPG and Action.

We were able to do this in 2 ways: firstly, internally through our studios, leveraging our increased presence in low-cost, high-skill development jurisdictions; and secondly, via our strong network of third-party design talent.

In addition, we have the benefit of a number of evergreen brands in our key game franchises. Sold-out games have been in the market for over 5 years and are still performing strongly, providing us with a healthy baseline of both revenue and margin through which to invest for further growth.

We also have leading-edge, native digital and data skills in product management, including monetization and game economy. We have the benefit of excellent digital marketing capability across our user acquisition, as well as organic marketing, driving virility and branding into our games together with global digital market intelligence and portfolio planning skills.

Finally, we had a strong culture of investing for growth in marketing and product development backed by rigorous and common processes to test returns.

Our vision for our digital business is similar to what we have achieved in land-based, namely to be a leading social digital publisher on a global basis. To achieve this, we are focused on 3 areas, which can, again, be summarized as focusing on the things within our control. These are on the right-hand side of Slide 9 and our portfolio growth and optimization, leveraging our scale and driving efficiency.

Turning first to our portfolio growth. We are investing in our key franchises through a relentless focus on delivering new content and features that resonate with players, keep titles fresh and drive sustained monetization. At the same time, we're launching new games using our market intelligence and growing data capability to build that strong portfolio across a growing range of genres.

Portfolio growth is also about entering growth segments quickly with proven capability and passionate teams.

Finally, we are bringing the same rigorous approach to portfolio planning, segmentation and return that has been key to our growth in land-based. We are fostering a fill or kill culture in digital, where games are subject to clear KPI targets. This ensures we only launch the best products, with our marketing investment is also highly targeted behind our most promising opportunities. Fundamental to this culture is about preparedness to hold back games where KPI thresholds are not met and to manage through this variability. We've held back a handful of games in Big Fish and Plarium during the [purporting] period, and this preparedness will continue to be important going forward.

Turning now to our second priority: leveraging our scale. Today, we have an ecosystem of over 8 million daily active users, within which we are increasingly able to cross-promote and use data to better understand player segments and emerging trends and to improve our products. On a combined basis, Aristocrat digital business is an important customer for key platform providers. And we have focused on leveraging these partnerships to generate value. For example, when we launched RAID, the game secured featuring on both iOS and Google stores. Apple even included the game in their marketing materials for the launch of the new iPad, underscoring the sorts of opportunity we are focused on creating through our platform partners. Collaboration and sharing are best practices across our teams is also a key source of value, as I referenced earlier. An example here is the deployment of a shared, sophisticated UA management platform across all of our digital teams during the reporting period, which is facilitating better investment decisions on a portfolio basis. We are continually testing lifetime value or LTV of our games versus the cost per installation or CPI, improving efficiency, which is our third focus area. We have also realigned resources in game portfolios of Big Fish to focus on value creation, and we are leveraging Plarium's operational expertise in low-cost jurisdictions to stand up new studios.

For example, during the reporting period, we established a new studio (inaudible), which specializes in creating features for Product Madness games.

As we shared at our Investor Day in May last year, our expectation was that in 2019, it would be a year of investment and transition for this part of our business. We believe we now have in place the foundation of an effective organic growth strategy and are already seeing encouraging progress. Over the balance of the year, we expect to launch a great number and a range of features across all of our key franchises, including our social casino apps, to drive greater long-term engagement and monetization. These will include collectibles, leagues, social features, clubs, missions and live operations.

Since period-end, we have launched new features across Big Fish Casino and in the last 10 days, also launched leagues in Heart of Vegas and collectibles in Cashman Casino.

In addition, we are embedding a clear nail and scale approach with successful titles receiving full marketing support and investment to scale globally and ruthless prioritization.

Finally, we are launching several ambitious new games, representing first to our business, including Toy Story Drop!. Consistent with our success in land-based, we are working methodically and with the benefit of experience and increased capability to build on these foundations and deliver superior, sustainable growth in digital, consistent with shareholders' expectations and our potential. We are comfortable with the choices we have made and are confident we now have the platform to drive sustainable growth. We will return to many of these strategic themes as we move through the balance of today's presentation, but I'll now make some comments on the changes in our tax arrangements that we disclosed to the market today.

Turning to Slide 10. Aristocrat's business profile has changed over the last several years for the large and increasing majority of profit generated from the U.S., now representing 60% of group revenues. In response to this significant shift and consistent with shareholders' interest, Aristocrat is in the process of implementing changes in its group structure to ensure that it remains fully aligned with the underlying business model. These changes are expected to result in the company being entitled to additional non-restrained tax deductions while continuing to be a tax resident and pay taxes in Australia.

These changes are not expected to come into effect until after 30th of September, 2019.

Financially, these changes are expected to lead to reductions in both cash tax paid and accounting tax expense, but will not impact the amount of Australian tax the business pays, which is averaged over $120 million per year for the past 3 years as disclosed in Aristocrat's Voluntary Tax Transparency Code report.

Aristocrat has obtained a private ruling from the Australian Tax Office that confirmed the treatment adopted by the group. As a result of the changes, the group's effective tax rate, ETR, is expected to reduce by 150 to 250 basis points compared to the financial year '19 ETR, to be 25% to 26%, which will continue to place Aristocrat well within the average ETR range for the ASX 100. We expect these benefits to continue into the future, subject to global tax policy or legislative changes. Upon implementation, the group expects to recognize a one-off material deferred tax asset. Implementation of these structural changes is subject to the receipt of gaming regulatory and other necessary approvals. These changes will further enhance our ability to invest in our business and behind our growth going forward. We'll provide a further update to the market, including indicative financial impacts on completion of the steps we implement after the 30th of September, 2019.

Moving now to an overview of Aristocrat's performance for the 2019 half year on Slide 12.

Normalized profit after tax and before amortization of acquired intangibles or NPATA of $422 million represents growth of 16.8% in reported terms and 7.7% in constant currency. Normalized revenue increased 30% to over $2.1 billion and earnings before interest, tax, depreciation and amortization, EBITDA, increased 19% compared to the PCP to $766 million.

In constant currency, revenue was up 21%, and EBITDA increased more than 10%, reflecting strong gaming operations momentum, which was partly offset by lower digital margins reflecting the impact of the acquired lower-margin social games in line with our expectations and an increase in design and development or D&D investment.

Normalized fully diluted earnings per share before amortization of inquired intangibles of $0.662, represents a 17% reported increase compared to the PCP.

Normalized operating cash flow of $439 million was generated in the period, an increase of 45% on the PCP.

Pro forma net gearing reduced to 1.6x at 31 March down from 2x at our 31 March, 2018 result.

Turning to dividends. The directors have authorized an interim fully franked dividend of $0.22 per share in respect to the 6-month period ended 31 March 2019, which represents an increase of 16% or $0.03 compared to the PCP and is reflective of strong earnings growth and cash flows, together with continued improvement in gearing.

The record and payment dates for the interim dividend are 30 May and 2 July 2019, respectively. In summary, for the 6 months to 31 March, 2019, Aristocrat reported a high-quality result, delivering a substantial lift in profit off the back of growth across the entire North American portfolio, including further progress in key adjacencies, a further increase in performance in ANZ despite a lower market and growth in Product Madness and significant progress in building a diversified digital portfolio as we move through a transition year.

Positive operating cash flow together with improvement in our balance sheet and increased investment in our future through D&D round out this result and position the business well as we move through the balance of the fiscal year. I'll now ask Julie Cameron-Doe to take us through the highlights of the group results on Slide 13. Julie?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [3]

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Thank you, Trevor, and good afternoon, everyone. I will first step through the composition of Aristocrat's reported normalized NPATA performance of $422 million reconciled to the PCP.

Profit numbers referenced in this section are post tax. Our Americas business delivered another strong performance, as Trevor referenced, leveraging it's established momentum. Profit improved to further $50 million over the PCP, largely reflecting outstanding Gaming Operations performance and share gains within our outright sales business.

The ANZ business also delivered further profit improvement, up $8 million compared to the PCP in a lower market. Margin expansion was driven by a favorable commercial mix and phasing of new games and market-leading cabinets.

The digital business delivered over $23 million in incremental profit compared to the PCP, supported by the full period of benefit from acquisitions, while also investing significantly in launching new games and positioning the business for growth.

In the international Class III segment, post-tax profit declined $10.6 million compared to the PCP.

Corporate and interest costs increased by another $12 million compared to the 6 months to 31 March 2018, reflecting incremental funding of acquisitions and the need to invest in infrastructure to support a larger, more complex business.

Increased D&D costs of almost $35 million versus the PCP reflects our commitment to invest in organic growth.We see this as an area of competitive advantage and therefore, our top priority in terms of capital allocation.

On a percentage of sales basis, D&D investment was 11.6% for the period, which remained broadly in line with our historic average. Aristocrat was the #1 filer of trademarks in the United States in 2018, filing 624 federal trademark applications, with the second top-ranked company filing 210 applications. We also took the top spot for trademark applications in Australia for the year. This is another example of our commitment to investing in D&D, translating that investment into intellectual property and ensuring we aggressively grow and defend these assets.

A decrease in the group's effective tax rate, reflects the benefit of the U.S. tax reform that came into effect from 1st of January 2018, combined with the change in geographic business mix.

Favorable foreign exchange movement, primarily reflecting a weaker Australian dollar, improved profit by a further $29 million compared to the PCP. For additional transparency, Aristocrat implemented new accounting standards in the period, which changed the treatment of Jackpot liability to form an expense to a contrary revenue.

This has the effect of reducing revenue and average fee per day in North America with no impact on earnings, thereby increasing the margin percentage.

We have restated these metrics in the PCP in order to improve comparability. Aristocrat incurred $10.5 million in significant items during the reporting period, primarily acquisition-related costs, including contingent retention and one-off transaction fees in relation to changes in the group structure. We have also included pro forma results for the digital business, given the timing of acquisitions in the PCP, on Slide 19 of our investor presentation.

Turning now to Slide 14. Growth and EBITDA have flowed through to normalized operating cash flow, which has increased by more than 45% on the PCP to $439 million. Working capital as a percentage of sales is down to less than 6% or fewer than 22 days. Capital expenditure increased around 25% to $150 million for the period. Around 2/3 of total CapEx related to the investment in hardware required to support growth in our North American Gaming Operations installed base.

This is expected to continue to drive high-quality recurring revenue stream and deliver strong returns on invested capital over time.

Turning now to Slide 15. This result highlights a further improvement in Aristocrat's balance sheet as a result of strong cash earnings growth. Net debt of around AUD 2.4 billion compared to net debt of around $2.6 billion reported at 31 March 2018, representing a pro forma leverage ratio of 1.6x versus 2x in the PCP.

During the period, free cash flows funded increases in tax and interest payments as well as capital expenditure, higher dividend and share payments. Post period-end, the business also repaid an additional USD 100 million in debt from our Term Loan B facility. We continue to be comfortable with Aristocrat's net gearing position, given the business' free cash flow-generating capability and track record of deleveraging. As the company will maintain a disciplined focus on risk management, with stable credit ratings that are aligned to our level of gearing and support our Term Loan B facility arrangement. This approach provides Aristocrat with financial certainty, competitively priced finance and flexibility going forward. That concludes the summary of group performance highlights.

I will now pass back to Trevor to comment on operational performance and outlook for the 2019 fiscal year. Trevor?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [4]

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Thanks, Julie. I'll now speak to the Key highlights of our operational results, beginning with the Americas on Slide 17. I would note that full details are contained in the review of operations document released this morning. In local currency, Americas' revenue increased around 18% and profit lifted of 17% to over $682 million and approximately $374 million, respectively, over the reporting period compared with the PCP. Margins remained above 50%. As Julie referenced, the new accounting standard relating to Jackpot liabilities has been applied to the current year and all relevant metrics restated in the PCP to assist with comparability.

The business delivered outstanding growth in North American Gaming Operations, with our Class III premium gaming operations footprint expanding 18.5% to 21,695 units at period-end, driving further share expansion in a relatively flat market. This progress was driven by continued penetration of Arc Single, Arc Double and Helix cabinets in combination with industry-leading games, including Buffalo Grand, 5 Dragons Grand and the Dragon and Lightning Link game families. This was further supported by the success of Flame55 cabinet, with strong initial performance with Buffalo Diamond as a multisite Jackpot product.

The RELM XL stepper product also continued to demonstrate improving momentum with the popular Liberty Link and strong portfolio performance in high-denomination variants, including the Virtual Wheel products, Diamond Jewel, Cherry Riches and our Triple 7 Wild Fire series.

At period end, around 800 RELM XL units were installed, demonstrating good growth momentum in this important adjacency.

In Class II gaming operations, BGT's installed base grew 7.3% to 24,681 units compared to the PCP. This was driven by the ongoing success of our Ovation video product with over 4,200 units installed at period-end and penetration in the new gaming jurisdictions outside of Oklahoma. New hardware configurations were also introduced to support Ovation's momentum. As a result, Aristocrat has relationships with additional 7 tribal customers today compared to financial year '18.

The business' total Gaming Operations installed base increased 12% to over 46,000 units at period end, and the combined average fee per day increased 1.3% to $50.05.

In outright sales, revenue increased 34%, and unit sales grew over 38% to 8,974 units. This reflected strong portfolio momentum, together with sales of around 2,000 units in key adjacencies and around 1,000 units into new casino openings during the period.

Continued strength in average sales price, ASP, reflected Aristocrat's portfolio depth led by the performance of Helix XT and Helix Tower. Aristocrat continued to receive outstanding customer feedback in North America over the first half of fiscal 2019, ranking as the leading gaming equipment supplier consistently across a number of key casino customer surveys. In February, Aristocrat took home 7 of the 21 individual category awards at the first ever EKG Slot Awards, including the prize for Best Overall Supplier of Slot Content. The land-based category winners were determined by over 100 slot managers, representing more than 300 casinos across North America.

Aristocrat's Americas' land-based business operations now account for around 57% of total segment profit and offers further growth potential for our business. Going forward, we are focused on leveraging our momentum and increasing capabilities to deliver further growth in our established market positions and in attractive adjacencies. In particular, we'll continue to build on our commercial presence across Class III stepper both in the for-sale and gaming operations segment, as well as in Class II video, Washington CDS and VLT markets.

Now turning to the ANZ & International Class III results on Slide 18. The ANZ business delivered another record half year performance with double-digit profit growth on the back of a 7% increase in revenues and a sustained customer-focus strategy. Average selling price improved marginally, up 1.9%, and segment profit margin increased 190 basis points to 47.3%. This reflects favorable product mix and the expansion of our subscription model. The business continue to offer more flexible customer solutions through the period with an increasing long-term buy-in programs with strategic accounts and bundled offers.

The ANZ business extended its market-leading ship share performance over the 6 months to 31 March 2019, driven by the high-performing Helix cabinet range and further penetration of Dragon Link and Dragon Cash game families, with additional games, along with Player's Choice,Hopeful, Cash Boost and Fantastic Jackpots. The Helix+ cabinet continues to be the cabinet of choice in ANZ with the Helix XT gaining traction during the year with the benefit of an expanded game portfolio.

According to Australia's slot manufacturers' report for March 2019, showed Aristocrat games, again, occupied a large majority of the top spots for performance across New South Wales, Queensland and Victoria. In the International Class III segment, revenue and profit decreased 15% and 27%, respectively, to $92 million and $40 million compared to the PCP.

I'll now provide more detail of performance in our digital gaming segment on Slide 19. Digital revenue grew 37% compared to the PCP, reflecting growth in Product Madness and the full period impact of Plarium and Big Fish as previously flagged. Bookings grew over 34% while remaining flat on a pro forma basis, reflecting a period of investment and transition in our digital portfolio.

Segment margin moderated to 30%, in line with expectations due to the full-period impact of the lower-margin social casual segment and significant market investment behind the launch of RAID Shadow Legends, which launched globally in March 2019.

Finally, segment profit grew 17% to USD 176 million. But on a pro forma basis, it declined 6.6% against the PCP. This, again, reflects higher marketing spend behind new games and a decline in legacy titles, partially offset by a focus on efficiency.

We categorize our digital businesses as social casino and social casual segments. As previously mentioned, bookings are broadly balanced between the 2 segments. The social casino segment contributed USD $316 million in bookings in the period, an increase of 29% compared to the prior corresponding period. This was driven mainly by growth in Lightning Link, launched in the prior period and continues strong performance in Jackpot Magic Slots.

The social casual segment contributed USD 270.1 million in bookings in the period, an increase of 42% compared to the prior corresponding period. This was driven mainly by strong performance in the key titles: Cooking Craze, Lost Island: Blast Adventure and the newly launched Raid: Shadow Legends.

Daily active users, DAU, moderated to $8 million, down 3.6% with growth in key titles offset by modest declines across some social casino and maturing social casual apps. The full-period impact of the acquisitions, which introduced a new diverse portfolio of customers and products that monetize differently to Aristocrat's established digital businesses and the launch of new games in the period, resulted in a lower ABPDAU compared to prior periods.

The business is investing strongly in launching new games and increasing UA spend over 45% to USD 153 million during the reporting period, approximating to around 26% of sales.

Turning now to bookings on Slide 20. To recap, bookings represent the cash a player has paid as opposed to revenue, which is an accounting number that recognizes only the items the player has actually consumed.

Of course, cash flow provides a more meaningful indicator of performance, and as a result, we are increasingly focused on bookings rather than revenue in our digital business. This slide is designed to highlight some of the important features of our portfolio approach to digital. Firstly, our current portfolio is well diversified with a good balance between social casino and social casual game segments overall. As the charts on the left-hand side demonstrate, social casino represents around 54% or slightly more than half of total bookings at period-end, driven by the scaling of Lightning Link and Big Fish's Jackpot Magic Slots, while the social casual segment accounted for 46%.

Secondly, the changes we are driving in our game portfolio are already improving the diversity of our overall bookings mix. We our top 4 games delivering 51% of total bookings during the reporting period versus 57% 12 months ago as the bar charts on the right demonstrate.

As we continue to build out the portfolio, we anticipate listing our reliance on a small number of key titles over time and further enhancing performance and portfolio sustainability.

Finally, the bar charts also show the quality of Aristocrat's digital portfolio with a broad suite of games with bookings of greater than USD 50 million annually, including Heart of Vegas, Cashman Casino, Big Fish Casino, Lightning Link and Jackpot Magic in social casino. And in social casual, this list includes Vikings, Cooking Craze and Gummy Drop!. Another wind on how we're building out our digital portfolio to view it from the perspective of the life cycles and active portfolio management.

This slide shows the progress we're making in filling pipelines across key genres and between social casino and social casual categories, ensuring what optimally managing the number and cadence of the leases. It also demonstrates the strength of our ever-growing titles and our continued investment behind these with new features that drive long-term engagement. We're making good progress in ensuring we're having a strong, diverse and well-performing portfolio. We continue to see outstanding potential in our digital business and also regarded as critical contributor to overall group diversity, long-term growth and performance stability.

Turning now to outlook for the 2019 fiscal year on Slide 22. Consistent with February 2019 guidance statement, Aristocrat continued to track in line with its plans to continue growth in the 2019 fiscal year.

In land-based outright sales, we expect incremental gains in attractive North American adjacencies in addition to maintaining market-leading share positions across key for-ales segments globally, including in APAC region, with no major casino expansions planned in financial year '19.

In land-based Gaming Operations, we expect expansion across our total Gaming Operations installed base, leveraging our broadened portfolio while maintaining market-leading average fee per day performance across the overall combined installed base.

We continue to anticipate further growth in digital bookings supported by new game releases. User acquisition or UA spend is expected to remain at around 25% to 28% of overall digital revenues, with the higher relative spend reflective of the increased number of games releases planned for financial year '19.

We anticipate lifting D&D investment across our land-based and digital portfolio in absolute dollar terms, while remaining broadly in line with PCP as a percentage of sales.

We anticipate moderate growth in corporate costs as we build the appropriate infrastructure to grow a more complex and diverse business.

We expect a further 100 to 150 basis points reduction in the group's effective tax rate versus financial year '18.

And finally, as we grow towards a more diversified digital portfolio, we continue to expect some skewing of our earnings to the second half of the financial year, reflecting the planned cadence of game releases and corresponding UA investment as previously noted.

Before moving to take your questions, I'd like to recap the shape of our result for the half year to 31 March 2019 on Slide 23. We are pleased to have delivered another record NPATA result with a strong 17% lift in normalized terms and 8% on a constant currency basis. This in turn was driven by broad growth across all parts of our largest business in North America, together with further performance in ANZ, growth in Product Madness and the full-period contribution of our digital acquisitions as we continue to execute our growth strategy across land-based and digital operations.

Aristocrat's increased investment in D&D during the period demonstrates our commitment to sustaining our growth engine.

The group also continued to generate strong free cash flows over the first half of fiscal 2019. Despite increasing dividend and reinvesting strongly in business, our operating leverage continues to trend back post acquisitions.

Finally, we continue to have a strong and flexible balance sheet that gives us full optionality to continue to improve our competitiveness and invest behind our growth plans going forward.

We look forward to keeping you updated as we progress. And with that, I'll conclude the formal presentation and open the line to any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Don Carducci from JPMorgan.

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Donald N. Carducci, JP Morgan Chase & Co, Research Division - Analyst [2]

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Just a couple from me, and I'll be back in the queue. So with the North American platform sales increased those 2,500 machines, how should we think about the portion of this, which is organic to previous markets versus recently entered adjacency markets? And how should we consider remaining adjacency growth in the second half with lower ASP markets Bar Top? So basically, is there some amount of growth to come, considering the majority was in the first half?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [3]

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Yes. Thanks, Don. Appreciate the question. So in the makeup of the numbers for the first half, we had around 2,000 units coming through from adjacencies, Washington, CDS and VLT, in that space and around 1,000 from new openings.

We expect the second half to have a lower number of new openings in North America so down on last year and down on the second half as well. And we expect the market to remain about the same size. We will enter into Bar Top in the second half of this year, and that will -- we have other -- our next adjacency that we will enter and continue to execute in the 2 adjacencies that we entered in the first half.

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Donald N. Carducci, JP Morgan Chase & Co, Research Division - Analyst [4]

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Great. And then my last question is, it feels like there's a difference from the expectations of the November result for the number of games that you had released in the first half and the subsequent associated UA spend that would impact the margins. Can you talk to this delta and whether you have a target in mind for the number of new titles that you're going to launch in the second half? And whether that transition period of fiscal year '19 is on track for completion so that there is a full run rate of Digital by this time next year?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [5]

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Yes, thanks Don. As I mentioned earlier, we've got this preparedness to hold games back if they're not right, and that's the great part about a digital business, is

you can put a game out and you can continue to refine it, and once you know that the game is operating at the level that you want it to operate from a monetisation, retention of

performance basis, we're then able to allocate the right amount of marketing and UA investment to drive that. So we still remain committed.

Our pipeline of games that we have for the digital business is still there. We're continuing to refine that pipeline and refine the features within those games. We said that we were

going to spend somewhere between 25% and 28% of sales or revenue on UA. We remain committed to that investment and the pipeline is still full, and we're continuing to make

sure those games are refined for release and we'll release them as required.

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Operator [6]

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Your next question comes from Mark Wilson from Deutsche Bank.

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Mark Wilson, Deutsche Bank AG, Research Division - MD, Co-Head of Company Research Australia & NZ and Analyst [7]

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Trevor, just looking at the Digital division in more detail. Given that we're far from through the runoff in some of those legacy games, RAID is scaling up. How do we think about the second half and going in -- through into fiscal '20 in terms of top line? And have margins bottomed in that division at 30%?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [8]

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Yes, thanks Mark. I think the way we think about it from a top line point of view is that this is what we've said, a transition year for our digital business. So we have

three categories, if you think about it from our game -- our digital games point of view. We've got the evergreen brands, we've got the emerging - the legacy brands and then we've got the emerging brands, and it's playing this portfolio. We feel comfortable that the evergreen brands are performing at the rates that we expected. The emerging or new brands, as you say in RAID, are starting to come through. From the legacy point of view, we're continuing to watch the investment in legacy so that we don't over-invest. In fact, they become great profit businesses as opposed to revenue investment businesses. So from our perspective, we believe we remain on track to deliver on our expectations for the full year. As I said earlier, our pipeline is continuing to be strong and we've got the rigour around when we release and how we invest behind the games. I would make one highlight which is that we've got Toy Story coming down, Toy Story Drop! coming down the pipe which will be released in -- it is being released as we speak and that will be the next new game which was part of our anticipated game releases for this year, as well. I'll just hand you to Julie to talk to you about the margins.

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [9]

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Thanks, Trevor. Yes, in terms of the margin, I think, as we suggested previously, the margins for Digital really depends on where we're at in terms of the mix of Social Casino and social casual. And then within that -- the mix in terms of the -- and the profile of the portfolio that we have with -- when we're launching new games and investing heavily behind UA, we do expect to see in the short term an impact on margin, and so it really depends on the mix that's coming through.

We're very pleased with the margin that we've achieved in the first half. And -- if you think about what we released in the first half, RAID came out at the beginning of March, so we only had a month of RAID. And from an earnings perspective that was negative for us, but ofcourse that was -- we believe that was the right thing to do because that's driving long-term growth of the company.

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Mark Wilson, Deutsche Bank AG, Research Division - MD, Co-Head of Company Research Australia & NZ and Analyst [10]

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And just following on from that, you mentioned Toy Story Drop!. Any other pay game releases that are planned at this stage for the second half?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [11]

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We had a number of game releases in the past month, but we're not releasing the names and the timing for those at the moment. Some will start in soft launch soon, and some are already in the market at the moment.

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Operator [12]

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Your next question comes from Kane Hannan from Goldman Sachs.

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Kane Hannan, Goldman Sachs Group Inc., Research Division - Research Analyst [13]

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Afternoon, Trevor, Julie. Just two for me, please.

Just again on the digital business, I appreciate there's obviously those new game launches coming but could you just comment, I suppose, on the magnitude of that legacy revenue

decline in terms of the revenue bucket and how we should be thinking of the profile of that decline? Then, just again on the digital business, I'm interested in that ABPDAU decline

and whether there was any impact from the launch of RAID late in the period that maybe boosted the user numbers for the last month. Thanks.

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [14]

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Yes, Thanks, Kane. I'll ask Julie to talk you about the legacy piece, and then I'll talk about decline.

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [15]

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Thanks, Trevor. Kane, yes, I'll draw your attention to Slide 20, which is where we've provided more information about the portfolio to really demonstrate the stability and diversity we have in the portfolio now. Within that, you can see Big Fish premium, which we would consider part of legacy, and you can see the size of that and the decline of that coming through.

So we don't see it as a large part of the business, we acknowledge it is in decline, but we're providing more transparency so that you can start to model that going forward.

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [16]

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Thanks, Julie. Then on the ABPDAU decline, so this is about our transition year for us. This is about making sure that we are investing behind both the legacy brands and -- well, the legacy brands, the emerging titles at the same time. We will see some ABPDAU shift as we refer to as the consequence of the mix between Social Casino and social games. We feel comfortable with where the ABPDAU is at, and it is part of the overall plan at the transition year this year for the Digital business.

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Kane Hannan, Goldman Sachs Group Inc., Research Division - Research Analyst [17]

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And so just to follow-up on that legacy portfolio. How should we be thinking about the other bucket that you're breaking out there, that 23% of revenue? And is there much in there for games that grew less than 50 new per annum? You haven't put that on the chart, or are there any other bucket?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [18]

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Certainly, other -- as I said, it captures everything. In terms of what's in that, that would have the up and coming games that haven't quite hit the market, but you could also have the older games as well. Last time, RAID would be in there, it could be -- once the up and coming ,but also there would be the older Plarium games and any other games that haven't hit that threshold as well.

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Operator [19]

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Your next question comes from Matt Ryan from UBS.

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Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [20]

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Starting social, casual, as you call them now. We can all say that RAID's doing pretty well and usually with the ramp-up period of spend before the game becomes profitable, but is this game sort of profitable at the moment, I -- as that gets accelerated quicker than the average? And then maybe if you can talk about Toy Story Drop! and what you've learned through the soft launch phase and how that compared to RAID?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [21]

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Yes, thanks Matt, appreciate the question. Just on the casual piece, RAID in these numbers is only one month of performance, and that is really off the back of a very strong launch with iOS and Google, and we're now continuing to spend UA dollars off the back of rigorous metrics around retention and monetisation and will continue to do that. We are not -- as of these numbers, we are not in profit for the half on that product, but we are continuing to see the growth and the momentum we expect behind that and it's meeting our expectations from that perspective. What have we learnt from Toy Story is, we've learnt through this process and also through

some of the great talent that we've been able to bring into the business around marketing and marketing skills, ways of creating our increased virality and, certainly, the Toy Story

Drop! brand, a strong brand from Disney, and the ability to partner and work with them on a launch campaign and launch product, we expect that to be a new skill set which we've

been able to acquire through our talent, but also in the way we're executing now with Toy Story Drop!

So we will see that coming to the market now and then they'll be refreshed as the movie comes out in June. There's a key link between our objectives and timing and also Walt Disney's on the brand.

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Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [22]

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Just to clarify a comment about not profitable in the half for RAID are you meaning the first half that you've already reported or the second half that we're in at the moment?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [23]

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The first half. It was a month ago.

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [24]

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It was actually -- it was just a -- we had one month in the market for the first month, so it's only -- it had only been launched in March, so we had one month of revenue plus costs to launch.

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [25]

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And as of today, we are less than 3 months in. So you know how this games go Matt. So we're not quite there yet.

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Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [26]

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Yes. Okay. That's all I'm assuming. Okay. And then maybe, Julie, just going back 6 months, I think you talked about $100 million of increased UA spend. So just curious as to whether that still holds at the moment. And are you be able to tell us what the UA spend was in fiscal year '18? You've obviously got the number now for the first half. So just curious on what that was for the full year.

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [27]

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So on Page 19, Matt -- I'm sure you've already seen it -- we're showing UA spend in US dollars going from $105 in the prior year to $153 this year, so you'll see within the first half we're about $50 million ahead of where we were last year, which kind of lines up with the $100 million we've previously mentioned, but we did -- we thought we'd be a bit more helpful and guide to UA over percentage of revenue which was 25% to 28%

when we reframed our guidance in February and we're still holding to that. You'll have seen for the period, it was at 26%. So we're lining up against that and we expect that term --

that range to hold for the full year, as well.

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Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [28]

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Okay. So was this still going to be around $100 million, though?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [29]

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We're -- as I said, we're moving to that guide now in terms of the percentage of revenue, so for the first half it's on track, but as we've said previously, the $100 million, we were worried that people would assume we'd spend it regardless of performance. We monitor performance very carefully and we only release the spend when we see the performance, and so it's more appropriate to look at this from a percentage of revenue perspective.

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Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [30]

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Fair enough. And just what did you spend in fiscal year '18 on UA, approximately?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [31]

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We don't have that number to hand right now, Matt. I'm sure the -- I'm sure [Ray] and [Reuben] can follow up with you on that.

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Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [32]

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Sure. I mean would it have percentage of revenue around 25% be roughly accurate?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [33]

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We're consistent. It's been 25% to 28% over the last 2 years.

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Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [34]

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Okay. Great. And then just last question, I guess there's a lot of positive clearly coming through from online, but one of the areas which we're watching pretty closely is Product Madness, and I guess just lower growth coming from Social Casino versus what you've done previously, obviously, on a much bigger base now. So just curious on how much of that drag is coming from web and Facebook at the moment. And also what the plans are for Product Madness and in particular, very specifically for Lightning Link in the U.S., given how well it's done in Australia so far?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [35]

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Yes. Thanks, Matt. First of all, I think one of the things that we talk about is the fact that since we've had Product Madness, the CAGR has been growing at 21% CAGR, and we'll be able to grow at 77% CAGR, which we're very proud of, obviously. The second part is we don't have a lot of exposure to web and Facebook through the PM portfolio. We moved that to mobile very early in the acquisition of that product of that business, and it's largely mobile. We do have some exposure, but it's less than industry numbers.

The Heart of Vegas has had a slower half than we wanted. That was a little bit of a frustration for us because today, we've been able to continue to publish great content and continue to grow strongly. What we've seen in more recent times is clichés such as collectibles, clubs, et cetera, tournaments being added to -- through Social Casino apps. We made that decision, as we said earlier, to put out a live op studio and start to increase our live ops capability, which we've done. And we actually started to launch our first range of live ops into the Heart of Vegas app only in the last couple of weeks, with early response being very positive from that perspective. So whilst we've been moving to new range of extra features on top of our land-based content being published, some of the competitors have just been adding those features prior to us, but that's still a robust business. And we did acquire Big Fish, which bought us some skills, particularly around clubs and social meta, and those skills have also been helpful in addressing the Heart of Vegas app as a whole. You asked the question about Lightning Link. I mean Lightning Link is -- continues to scale for us. It has been scaling in Australia as a priority, and we've been focusing on that. The content and the features, we will continue to refine those to get global distribution for that product as well.

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Operator [36]

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Your next question comes from David Fabris from Macquarie.

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David Fabris, Macquarie Research - Research Analyst [37]

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Focusing back on the Americas business, outside the big step up in outright sales providing operating leverage, were there any other benefits to the margin when we look at that sequentially?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [38]

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Yes. Thanks, David. I'll pass to Julie to talk to you about the margin...

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [39]

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Yes, and I don't want to repeat myself too much, but we just want to start by reminding everyone that the margin was affected by the accounting standard which didn't affect earnings but, obviously, jackpot liabilities come off revenue now as a contra rather than as an expense, so we did restate margins. So we're down about 40 basis points year over year and that's an apples-to-apples comparison. In terms of

movements in the margin in North America, we are getting operating leverage from having a larger gaming operations install base, so that is certainly coming through.

The counter to that has been, as we're expanding into all of these different adjacencies, we are expanding into areas where there's -- we require a larger infrastructure to support

them, a larger sales force and so on, and some of them obviously have lower average selling prices than the video segment where we previously -- was the only segment we sold

into.

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David Fabris, Macquarie Research - Research Analyst [40]

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Okay. And just another question on the North America business. Just to clarify an earlier question. Within outright, can you just talk through the contributions for the BLT and CDS and how we should think that -- about that into the second half, given you sort of called out 2,000 unit sales in the first half?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [41]

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Yes. Thanks, David. So realistically, we have entered BLT, which was 2 provinces that we entered this year. And as you know, that this is the government proposition so that do take some time. We have planned to enter another couple of provinces, but it may not -- well, they will not materialize in the numbers in this financial year. As far as Washington CDS goes, we have taken -- - we have had a good start to that, and we have a pipeline of games and a pipeline of opportunities in the Washington market for the balance of this year. We're not guiding to what that number looks like, but we are confident in the product that we've made, the performance of the product and the penetration today.

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David Fabris, Macquarie Research - Research Analyst [42]

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Yes. Okay. And just one last question from me, just looking at the capital structure, I know you guys made commentary earlier that you're fairly comfortable with where the gearing is, and you're deleveraging. But if we look at this over the medium term, is 1.5x leverage sort of a comfortable level, or would you be more comfortable closer to 1x leverage?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [43]

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Thanks, David, we're pretty comfortable with where we're at in terms of leverage. We're getting to, I think, a nice progress deleveraging, and that trajectory will continue.

So we like to keep our options open. You see we have a very strong balance sheet, with nice long-term debt which is well priced. We've prepaid plenty of that so we have no obligation to make further repayments on the debt, but we will, of course, look to pay down the debt as we generate further cash flow, and we wouldn't allow any other option.

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Operator [44]

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Your next question comes from Larry Gandler from Crédit Suisse.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [45]

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First question on digital, Trevor. Just looking at that game breakout, I appreciate the disclosure there. Do you imagine a time where the dispersion of the games you have is, perhaps, more broad? Right now, you've got 16% of sales as the largest game. Is there a period of time where, perhaps, the largest game is 3% or 4% of sales? Is that how you kind of see the portfolio evolving?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [46]

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Larry, I think 3% or 4% might be a little bit lower than my anticipation. We do expect to see a broader distribution of sales across those bar charts. I think, more importantly, I expect to see the bar charts to be bigger than what they currently are, so getting into a larger address for market. Really, the story here is about a portfolio growth

which has continued to have a strong pipeline of games and executing on those games in high quality.

This rigour that we've talked about a couple of times now about fill or kill and making sure that, if we're not making it -- the other one's about leveraging the scale, is building up this

scale both in DAUs and also leveraging our capacity and capability across that DAU pool, but also a data science, as well, and then really maximising our UA spin. I think 3% or 4%

is a very low number and it'd be a -- to me, it'd be a shotgun approach as opposed to a sniper's approach to what we're looking to achieve. We do expect to have a broader distribution across our portfolio of apps and that's really what we're building for out of this year as a transition year, is to start to broaden that distribution of games. As we said earlier, you should be expecting in those others -- games like RAID, I would expect would start to come into these because this is a $50 million annualised number. I'd expect RAID to be falling into that range when we report next.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [47]

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Yes. So you'd expect many more games over $50 million and a larger business is what you're saying.

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [48]

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You've said it more eloquently than I could.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [49]

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Okay. Great. I got that. And just with regards to the Australian business, it seems like you're having quite a bit of success with the access model and the leasing there, and there's not much disclosure about any results documents, but it is quite the story to that whole business. So can you give us some color on how we should think about modeling that or projecting revenues?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [50]

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Sure. I think I'll talk very quickly of the process. It's been a model that we've refined over a number of years now, and you've been watching that flow through. It's a model that is -- it's not a model that every customer wants, but it's a model that applies to some of our customers, and this is why we continue to remain customer-centric in what we do. I think it's probably best for Julie to make some comments on just what it looks like from a financial point of view.

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [51]

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Thank you, Trevor. So the access model, as Travis said, it's been developed over a few years. It's really about providing the best solutions from a customer perspective and giving them choice. We've seen a good take-up of it. We've seen the customers likely because of the conversions that it offers them and allows them to keep their floors fresh. We really -- we don't disclose more on that. We can say we are we are moving to more kind of long-term relationship with our customers. And based on subscriptions, subscription style offerings are becoming more popular.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [52]

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I know you don't -- haven't disclosed it yet, Julie, but it's ironic that you disclosed participation for Latin America but not the lease games for Australia, which is quite material. I'm just wondering if you can sort of give us a feel for it. How many units are under this lease model?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [53]

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It's not something that we disclose, Larry.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [54]

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Okay. Maybe I'll just ask one last question then, if I

can, and that's regarding the second half guidance. When I think about some of these items, it sounds like you're suggesting the second half will be larger than the first half in

NPATA based on the guidance. When I think about Australia and even outright sales in North America, it sounds like your language is that might be smaller profit in the second

half. What major streams are going to be larger in profit in the second half?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [55]

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Yes, thanks Larry. As you rightly say, with the portfolio we have now, there's quite a lot of different moving pieces to this, so yes, as we flagged, we do expect some skewing to the second half and this is largely in relation to the timing of this pipeline of digital game releases and the UA investment, and I think I've already referred to -- for

example, at the end of the first half we had Raid which required - we put significant UA behind that, but of course, that was negative from an earnings perspective because it

didn't pay back in the first half. Similarly, the new features that Trevor referenced that we're rolling out in social casino,

we would expect to see those help lift digital in the second half. We've got higher gaming operations install base going into the second half, so you get a natural lift from that. I

think, really, what I'd do is I'd frame it with reference to history, and if you look at the past two years, we've had pretty even splits between the first and second halves. Prior to

that, we had slightly more pronounced splits. I'd say we wouldn't be going back to the days when we had much more pronounced SKUs, but we wanted to make sure people

understood that it's not going to be the even split that we've seen in the last two years.

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Operator [56]

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Your next question comes from Anthony Longo from CLSA.

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Anthony Longo, CLSA Limited, Research Division - Research Analyst [57]

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A couple of quick questions from me. So firstly, on digital, just obviously noticed the DAU number has obviously come back again, given the rejigging post the acquisitions. Are you

able to maybe give a sense as to how you're expecting that DAU growth to materialise going forward? Is it something that you'd expect those legacy titles to roll off and new titles to literally add to the base? So I guess what I'm trying to say is, do you expect it to be growing at low, single digits and being held rather flat, and I guess the top line largely

driven by monetisation, or am I missing the point on that?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [58]

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No, I think definitely -- I think, first of all, this is our transition year for our digital business and we are making some choices, as we mentioned, about our preparedness to both fill and kill products. So, from a portfolio point of view, we want to execute high-quality new games and new content into the marketplace, and that means in some cases, we are winding back investment in potentially some of the legacy products

which allows us to make better profits, from that point of view. That obviously is a clear strategy. The second part about it is that we will continue to invest to grow our core business from a DAU point of view. So we've seen casino DAU increase by about 3%, we've seen casual DAU come off by about 3%, but we're focusing on the quality of our DAU, not the quantity of DAU. I think there's been enough industry commentary around DAU remaining flat and we then expect to see that we'll get an increase in our DAU in the second half of the back of the momentum that Raid has demonstrated in the last month of the last half. Also, as I mentioned earlier, the release of Toy Story Drop! which we expect to see DAU growth from, as well.

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Anthony Longo, CLSA Limited, Research Division - Research Analyst [59]

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Okay. Great. And then so back on the Americas, I'm looking at outright sales. I mean -- so you did sort of touch on those adjacencies have contributed maybe 2.5 -- or sort of just 2,500 units. But so I guess what I want to get a sense as to the average selling price ex those adjacencies, which I understand are lower ASP. Are you able to give a sense as to how the other part of market has held up in the context -- in the recent competitor reports?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [60]

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Yes, thanks Anthony. Well, some of those adjacencies are lower ASP and that's a consequence of the economic models that we have and we have mentioned that there are some ASP pressures on that. From an overall market point of view, North

America is one of our most aggressive markets. We've got legitimately 10 competitors in the North American market where game content and cabinets, we're fighting for share of

floor on a regular basis. I'm very happy with the progress that we're making. We still hold a premium ASP to all of our competitors. We also hold strong game performance in our portfolio and, from our sales execution point of view, I think the relative percentages -- which I won't quote, to save the question -- of the opening at [Encore] was a step up from where we've been historically. So I -- in a tough market, we're fighting for our share. We're [graining] share in floor sale and there is some dilution as a consequence of entering adjacencies, but again, this is a planned approach for us to grow our business overall.

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Anthony Longo, CLSA Limited, Research Division - Research Analyst [61]

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Okay. Great. And sorry, final one for me. Just in the Class III gaming ops, and apologies if I missed the answer earlier. But that looked like a really strong result, so are you able to give a bit of color as to -- was there anything in particular in that first half that may have driven that sort of strong result in the first half? And just in and just in us

rebasing or taking into account forecasts for the second half on that front?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [62]

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No. It's a continued momentum of the game portfolio and cabinet portfolio that we're continuing to launch. Flame55 came out. Buffalo Diamond has come out on the floor and been a very strong performer from day 1. We've seen momentum continue to build on RELM XL, which is our gaming ops stepper product. And we continue to release good quality games off the back of the consistent performance of our Dragon Link and Lightning Link install basis.

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Operator [63]

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Your next question comes from Sacha Krien from Evans & Partners.

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Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [64]

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Most of my questions have been asked but I've got a couple. Social casinos, first of all, and then one on the tax guidance. So, in terms of social casinos, you mentioned, Trevor, that industry trends around daily active users have seen them slow down a bit. Can you comment generally on whether you still see a lot more growth in this particular market, particularly

the biggest market being the US? Maybe within your comments, can you perhaps -- rather than daily active users, can you make a comment around paying users for your social casinos?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [65]

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Yes, thanks Sasha, no problems at all. First of all, we've seen a slowing down in the social casino market now for a period of time, and that's industry wide. The one thing that we continue to focus on is improving our monetisation, and we know that that's been a positive for our business when you look at, we started in this category at around $0.20-odd or even sub $0.20 when they're holding well over $0.50.

We know our content resonates, but at the same time, there are changes happening in the category with social aspects, meta game aspects, adding collectibles, missions, clubs, leagues, tournaments, leader boards and collectibles into the portfolio. It's an important way of remaining competitive. We have already started to launch a couple of those into Heart of Vegas and we've seen responses already, plus we've launched one into the Big Fish Casino, as well, which was treasures. I'm happy with the performance of those.

So Big Fish Casino has launched treasures, Heart of Vegas has launched leagues just recently and Cashman has launched collectibles, and we've deliberately tried different

features in each app so that we're able to learn from that and then apply those differently across the other apps, as opposed to putting them all into one. We really believe that there's strong monetisation in what we do and we're focused on retention, which is something that we've learnt over the last six years as a digital casino operator ourselves, and we remain focused on that.

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Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [66]

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Could you just qualify, has the conversion rate from daily active users to paying users actually improved or it's staying about the same?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [67]

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I would guide to staying about the same. We're seeing slightly better in some cases, but I would say on an average, it's staying about the same. From an ABPDAU point of view, there is good momentum in ABPDAU in certain apps where we've started to

do different features. So monetisation is still a focus for us and we're seeing monetisation improving.

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Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [68]

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And that's really a second half story, those new features that have been introduced into the Product Madness house?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [69]

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Yes, correct. They've really only been released in the last couple of weeks, and treasures in Big Fish were about a month ago. So it is very brand-new, but the great thing about digital business is you release something and within hours, you can monitor what it's doing to your business.

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Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [70]

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Yes, that's great, thanks. Last question on social casinos, just in terms of that monetisation strategy, does advertising play a part yet in your thinking for the active users that aren't monetising at all, which is probably around 95%?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [71]

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It's actually -- from our perspective, it's actually a very, very small part. We really focus on entertaining our players, adding new features and benefits and providing great casino content. We actually don't see ads as a big part of that at this point in time.

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Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [72]

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And just 2 questions around the tax guidance. So the 25%, 26% for FY '20, is that the way we should think about the effective tax rate beyond FY '20 as well?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [73]

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Thanks, Sacha. So the update we provided on tax is really the position that we are able to share at this point in time. I think you're probably aware, this is something we've been working on for some time. It's been a long process to work through. We're really focused on the long-term with this and, as we've been looking at this and trying to align the Group's structure to the underlying business model, we -- and the

underlying business profile, we've had to take into account the fact that we are much more present in the US than we are in Australia and, therefore, we had to really get pretty

expert in terms of the laws over there.

As we're looking at this, we're definitely looking at the long-term. So at this point in time, we are saying that it's a reduction on FY19 of 150 to 250, starting not before FY20, so that would be the average we're looking at going forward.

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Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [74]

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Okay. And then just last question. If you can comment on it, is there -- is the actual cash tax rate lower than the effective tax rate? And is that something that is also going to be maintained going forward?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [75]

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So we'll provide more when we know, once we actually implement

this. We've still got some way to go before we implement it. We were pleased -- we've been engaging with the authorities and we were pleased to obtain a private ruling that concerns

the treatment, but given we're still some months away from implementation, we'll -- there's other factors in terms of the valuation that will come through on that and we'll know more

later and we'll be quantifying the size of that material deferred tax asset we relate to, and also we would like to provide a range of cash tax savings that we'll achieve, as well.

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Operator [76]

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Your next question comes from Nick Caley from Baillieu.

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Nicholas Caley, Baillieu Holst Ltd, Research Division - Research Analyst [77]

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I think most of my questions have been answered. Just Julie, if you could just help us -- extension of the last question, what should we put in our models for franking?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [78]

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Oh, okay, franking credit. So as we mentioned in the announcement, the changes we're looking at don't impact our Australian tax, so we'll continue to pay tax in Australia as we have. We just announced the dividend for the interim dividend, which is fully franked. And subject to us continuing -- and as we know to date, continuing to pay tax at this level in Australia, we would expect to continue to do that.

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Nicholas Caley, Baillieu Holst Ltd, Research Division - Research Analyst [79]

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Do you expect it fully franked for a while yet?

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Julie Cameron-Doe, Aristocrat Leisure Limited - CFO [80]

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No change to the status quo.

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Nicholas Caley, Baillieu Holst Ltd, Research Division - Research Analyst [81]

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Okay, that's good. Just the last one, possibly for Trevor, is

just I know it's early, but is there any sort of anecdotal feedback from land-based venues in North America, how sports wagering may change their landscape at all? Any feedback

from your clients?

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [82]

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Yes, thanks Nick. I have actually Matt Wilson in -- on the line who's close to the market there. We're obviously in conversations with a lot of our major customers on a regular basis, so I'll just hand to Matt to make a couple of comments.

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Matthew Wilson, Aristocrat Leisure Limited - MD of Americas [83]

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Yes, so obviously in the early stages of sports wagering rolling out across the Americas region, the feedback we're getting from major casino operators is they see this as an ancillary benefit for their broader business. Obviously, sports wagering in the markets, which is legal today, is still a small percentage of the overall market, but there are benefits in terms of increased visitation from patrons and increased frequency of visits and spend per visit. So there should be a slight tailwind for GGR across the Americas based on the ancillary benefits that come with sports wagering.

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Operator [84]

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There are no further questions at this time. I'll now hand back to Mr. Croker for closing remarks.

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Trevor J. Croker, Aristocrat Leisure Limited - CEO, MD & Director [85]

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Yes. Thank you very much. I'd just like to reinforce this is not a high-quality result for Aristocrat, but it reflects the strong execution of our strategy that's strong and stable business creating value for our customers and our stakeholders and shareholders. Land-based business continue to drive profitable growth as we expand our addressable markets and take share. So we're making towards building a larger, more diversified digital portfolio supported by strong evergreen and new titles exposes us to a much larger, fast-growing market opportunities. The financials are strong and continue to

improve. Operating cash flow and dividend are leveraging effective tax rates trending down which highlights the sustainability of our business model.

With that, on behalf of the broader Aristocrat team, I'd like to thank you for your interest in the company and wish you all a pleasant afternoon. Thank you.