Good morning, everybody, and welcome to Aristocrat's Investor Management Roundtable. Thank you for joining, and thank you for your interest in the company. This is a new initiative for us. It's in response to the market's desire for more corporate access, and it's also in response to the fact that, unfortunately, this year there's been no virtual in-person, or there's now been no in-person trade shows, whether it be Sydney's AGE or this upcoming G2E in Las Vegas, where we're looking at virtual options to navigate. Over the next one hour, we've got members of our management team, including CEO and Managing Director Trevor Croker, our CFO Julie Cameron-Doe, and our CEO of our Land-Based Operations, Mitchell Bowen. We're going to address the more popular questions that we've received from those registered attendees.
I'm going to do my best to avoid being a bad impersonation of Michael Parkinson by directing those questions. We will be able to take live questions, and we'll do our best to accommodate that. For any of those live questions that we can't answer because of time and the flow of the meeting, we'll do our best to get back to you post this meeting. This meeting is being recorded. We'll be getting a transcript, and we'll be posting it on our website for those people who'd like to go through those materials afterwards. With that, I'd like to thank you for your interest, and I'll open the meeting with a question to Trevor in terms of just extending your welcome, but also how Aristocrat's approach this COVID event, given it's been uncertain times and there's been really no precedent label. Thanks, Trevor.
Yeah, thanks, Rohan, and welcome, everybody. Thank you for your continued interest in Aristocrat and for your quality time this morning for this next hour or so. COVID came, and it came very quickly. We effectively saw our land-based business close almost overnight. We saw the communities in which we live and operate close effectively in a number of days, and that changed the way that we had to think about our organization and our business going forward. With that occurring, we focused on four principles, and they were really around our people first, customer centricity, liquidity and balance sheet preservation, and maintaining a supply chain for our product and manufacturing. The team were very good at pivoting, as I said, communities in which we operated, and our land-based customers closed literally in days.
We went from being close to 100% of people working full-time in offices to close to 100% of people working full-time out of offices across a population of in excess of 6,000 employees around the globe. With that, we had a three-phased approach to the way that we thought about this problem. First of all, it was about respond, then it was about recover, and now we're starting to enter into what we're calling the thrive part of the recovery from COVID. I'm confident with our strategy, and I'm even more confident with the execution that the team have delivered over the last six to seven months as we've managed through this challenge and seen changes in our business operations on a day-by-day basis. We saw our digital business respond very quickly, coming off some strong momentum from RAID and more recently the launch of EverMerge.
Also, the rebounding of our social casino business, Product Madness with new features and live operations. At the same time, our local land-based businesses were able to respond, and they came into this position, came into this scenario in a good position, strong balance sheet, strong operational metrics, and a strong portfolio of performing games. Since then, they've been able to respond and focus on our customers and provide great customer service and customer satisfaction. I think the efforts that the team have demonstrated through this period have been admirable. They've been exactly what you'd expect of an organization that's looking to continue to grow and sustain its growth profile going forward. At the same time, our D&D business took the opportunity to refresh and refocus the portfolio, and we didn't miss a beat with all the changes we made in our organization through this period.
We did not miss a beat with the delivery and the strategy of our cabinets, games, and technology, which I'm extremely proud of, and it's our way to help lead the industry out of this period of time. I'm sure there'll be more questions during the presentation, and I hope that we are able to address those, but with that, welcome to our presentation, and thank you, Rohan.
Yeah, thanks, Trevor. Let's turn the attention over to the land-based side of things. Obviously, we hit Corona. All of a sudden, our customers' casinos closed. It was a pretty tough environment for everybody. Mitch, can you just talk about the land-based, the market operations at the moment, and where we are in terms of the casino openings and performance post-reopening, please?
Yeah, sure. Thanks. Morning, everyone. Look, I think when you start to look around the grounds, we'll start with the Americas. New openings can continue to progress. I think we're up to just over 90% of properties are open across the North American marketplace at the moment. They still are varied in terms of their capacity, so somewhere between that 25%- 75%. Things like varying their number of entry points, how many F&B outlets they've got open, what they're doing with their gaming floor. They're all largely around that social distancing, so some have spread their EGMs. Some have turned every alternate one off or on, so it is still a market-by-market, channel-by-channel approach in that regard.
The US operators are still doing targeted marketing towards their patrons as they come into the floor, but largely, they are prioritizing game performance and the top-performing products to be turned on over that period of time. We do see some encouraging signs and some green shoots across North America in terms of player responses, and coin-in levels are remaining pretty robust at the moment, which is good to see. I think when you start to look at Australia, we're largely about 95% open. Parking Victoria, for a second, obviously, we're all very clear on what's happening n there with our VIC Partners, but New South Wales, Queensland, South Australia, Northern Territory are all progressing quite well. Similar buoyancy on player demand and similar restrictions in place in terms of contact tracing and those sorts of things. Asia largely continues still.
Macau struggles with foot traffic coming through the door, so that's a slower recovery than we originally thought it would be, but then the broader Asia markets are starting to open up as well. Overall, we are seeing some pretty positive signs across the globe in terms of reopenings.
Mitch, we're very fortunate as a company to have a strong balance sheet to provide some support to our customers as part of the reopening. Steven Green from Super Invest asked, "What's the status of those operational and financial discounts that we provided for those casino reopenings?
Yeah, always thanks for that question, Steven. I think, look, last time we spoke, we did talk about, or we mentioned that we would be discounting our fees, whether it be on gaming operations or systems maintenance or service contracts, those sorts of things, up to 90 days, and we've largely seen the majority of those terms are finished. At the moment, we are seeing a fleet activation over 85% of our fleet at the moment, which shows a reflection of not only the service-led strategy in terms of getting our machines and fleet activated and merchandised and socially distanced, but also the quality of game performance and innovation that's coming through the pipeline at the moment. When I say 85% of that fleet activated, that's broadly, that's across the globe.
Specifically, we're seeing higher run rates in key markets like Oklahoma, where we've been focused with key customers across the board on that. We haven't seen customers have been very good. We talked about a month-to-month review on that, and I would say of that 85% sort of fleet activation, largely all of those are returning to normal levels at the moment.
Okay. If we've got 90% of casinos reopening, we're activating our gaming ops. On the way forward, how do we see the U.S. market at the moment? Importantly, what's the risk of further closures with COVID cases still at elevated levels?
Yeah, the last question is anyone's guess, right? We've seen what second wave can do to Victoria, so I think we can all kind of stick our fingers in the air on that one. When we talk about further closures and how the fleets are going, we are seeing some pretty positive green shoots across North America with players returning into venues. We are seeing some buying cycles start to return as operators start to refresh their floors. Largely, we are seeing obviously, I mean, you guys all know, right? When you think about the different channels across North America with our tribals or our regionals or corporates or route markets, they are all different. That continues to remain the same.
What we are sort of starting to see is the leasing model, that gaming operations type model, is positive because it allows customers to maintain flexibility on their fleet. We are seeing a bit of a conservative approach to sort of capital spend, and we do expect to see that conservative approach through sort of the next six months of our first year as everybody, as you guys asked, customers all look for those buying signals from consumer confidences and GGR and those sorts of things. I think we can start to look at that gaming operations footprint. You look at our data point of that 85%, we get pretty comfortable on what that's going to look like moving forward.
When it comes to outright sale and capital expense budgets, we are taking a bit of a conservative approach on that as we talk to operators as they conserve capital during these uncertain times.
In terms of game performance, how do you see the portfolio performing at the moment as we've come out of this with the casino reopenings?
Look, in short, probably never been stronger. The breadth and depth of the portfolio is great. We've obviously got great industry reports like the Eilers-Fantini reports and survey reports that come out. Not just on the cabinet side of things. I think we've got five of our cabinets are in the number one slot spots at the moment across our footprint, our Arc footprint, our XTs, and our Helix footprint, Flame, et cetera. When we start to look at our content, I think last report we had 16 of the top 25 games across that report. When you start to look at games like Dragon Link, Lightning Link, those sorts of franchise Buffaloes, we've got some really big franchise brands out there at the moment that when I referred to that sort of player demand, players are coming back to the floor looking for their favorites, right?
We have had tried-and-true favorites over many years, and obviously with new releases like Cash Express, with Star Trek, Zorro, these sorts of products, they continue to build on that great performance that we're seeing across the market at the moment. I would say our performance has never been stronger, and it continues to go from strength to strength.
When you look at game performance and you're talking to your customers, particularly in this new environment, how does that translate? Is it purely based on cost for the customer or pricing from our perspective, or is it based on game performance?
It's based on value at the end of the day. I think we spoke a couple of months ago around our recovery plan and our response to the COVID environment with our service-led and customer-led approach. Yeah, while we've got a great performing fleet, we've also got top-level service. We unfurloughed and brought back our staff before anybody else did. We've been out in the field and on the ground responding to customers on a case-by-case basis. We know it's not a one-size-fits-all for everybody, and we've spoken previously about those channels: tribals, routes, and regionals, and those sorts of things. I think when we start to look at where our footprint is going and what customers are looking for, they are starting to think about, "Well, where is the best bet?
How can I get more bang for my buck on a footprint, and what other value-added services can I expect from a vendor going forward? That is leading to a lot more strategic conversations, a lot more longer-term conversations, and obviously, maintaining our spend on D&D becomes a pretty important part of that.
As we sit here today, we've got Jamie Nicol from DNR Capital. We've got pretty well most of the sell side asking, "How do you see the market size on the U.S. land-based business over the next couple of years?
I think based on what we've sort of just talked about with conservative customer capital, we are looking at a bit of a compressed market through the FY 2021 year, but we do expect to exit that closer to the FY 2019 run rates. We are kind of looking at over a 12 or 18-month period of that recovery, both at a GGR or coin-in level and at a machines turned-on level. There are some customers that are sort of talking to us about, "Well, I've got a reduced floor footprint, and I'm making similar returns to what I was previously, and so why do I need this many machines?" I know that's probably a question that the market has. That's absolutely a viable question to have at a point in time, right?
Remember when I talked about they've still got restrictions on their floor, reduced entry points, targeted market to sort of their mid-tier to top-tier players. They haven't welcomed everybody back into their venues. We are just encouraging operators to think a bit longer-term on that and making sure they're not making short-term decisions around that. We do expect the market to recover over the next 12 or 18 months.
If you have a look at the Aristocrat Leisure model, it's phenomenal penetration on the recurring revenue on the gaming ops side. Therefore, we're less beholden to our customers' discretionary CapEx cycle. Still, it is about 30% of our revenues based on FY 2019 is outright sales. Matt Williams from Airlie asking, "How do you see outright sales in particular and that replacement market over the next one- two years?
I probably need to break that down into a bit more detail. I would probably start off by taking, maybe to use an industry term, a bearish approach on Australia. I think the majority of us are on the ground here, and we know what's happening in VIC. We know what restrictions are in place and the conservative approach government's taken. We know Australia is largely, while it's a churn market, it is an outright sale market. I do expect the Australian market to be compressed significantly over the next 12 months. When you start to look at the U.S., it's a little bit different because we have that portfolio approach, right? We have a magnitude of commercial options available, and we've got a portfolio approach.
When we think about not just game ops and not just game sales, but when we talk about those other adjacencies that we're into with our steppers and bar tops and VLTs, and we start to think about what we're doing in our systems and customer experience business around our mobile applications and cashless gaming and those sorts of things, we don't see as impact as we're seeing in Australia. We see a compressed market, but not as impactful. We will look to modify our commercial flexibility around the outright sales market in North America and ensure that we're bundling and looking at the portfolio in its entirety.
We're seeing great game performance. We're seeing good growth, good market share gains. How do you see that from an operator's perspective on your view around design and development spend over the next few years?
I think we're all clear that D&D is one of those things you can't just flick a switch off and then flick it back on. D&D is not a six or 12-month view. It's a two-three year horizon, right? When you look at the depth and breadth of the portfolio that we've got in terms of our cabinets, our content, that return on D&D investment is going to come over a two-three year period, not at an exit rate of a 12-month. We did take the approach that in a crisis, ensure that you invest where you're going to get the best bang for your buck, and that is, in our view, capital expenditure within our D&D portfolio. What our big focus is now on D&D is we've been very thoughtful in the spend that we're doing.
We have reduced some spend in areas like hardware and cabinets, but we have got targeted spend to make sure we have still got new hardware coming out into the marketplace. We are still developing behind our adjacencies that we have spoken to the market about previously and ensure we have got a content pipeline behind that. We are looking at what we can do internally around our technology efficiencies and in terms of our game development kits and platforms, how we look at our engineering and how we get efficiencies across our engineering side of the business. Look, it just becomes then that basically, as we have talked about, gives our customers confidence that we are going to continue to invest into the future. That is allowing us to have far more strategic, longer-term buying conversations with the majority of our key customers across there.
We do take a longer-term view on D&D, and really, what our job now is, as we talked about a compressed market, is from a sales perspective, we have to focus on the velocity of that commercialization and how we get that speed to market, how we manage our fleet, how we are optimizing the best performance and making sure that we're leveraging our data and our technologies to put the best products in the right floors at the right time to maximize our customers' return. It is one of those things that is important for us. In the absence of M&A, it is the best bang for buck on spend, and we'll continue to do that over the foreseeable future.
Mitch, finally on D&D, we received a question from Matt Ryan from UBS, and it sounds like Aristocrat continues to develop games during the COVID lockdown. How do you intend to release those games considering that there is a potential lull in buying activity in the short term?
Yeah, thanks, Matt. Look, again, it comes down to how we're targeting our fleet. Yes, there is a compressed market, no question about that. However, there are key releases, i.e., we just released Star Trek as the world premiere at the M Resort earlier this week. It's actually about the broader commercialization of these games. It's not just about a single customer. It's about how we broadly release these. We're starting to adopt, you'll see if you haven't already, some convergence of the digital world as well. We've live streamed with some YouTube influencers, some land-based product launches. We did one of high denomination Dragon Link from the Seminole's property, and that's touching more and more people around.
We're looking at more innovative ways to commercialize our product, but no question it's going to be about fleet optimization and portfolio management as we go down that path.
Thanks, Mitch. At Aristocrat, we see D&D as an investment that obviously has a massive contribution to our P&L. It is probably a good segue to move across to a few financial questions and introduce our CFO, Julie Cameron-Doe. Julie, before we go into the detailed specific questions from the audience, can you just broadly look at the key initiatives in how we have been managing COVID in response?
Yeah, sure. Good morning, everyone. Thanks, Rohan. Yeah, if you think about where we were at back in April when we first spoke to the market about this, we were very much focused on, first and foremost, the welfare of our people and focused on our customers as well. We were also very thoughtful and deliberate about our approach to it because, as I think Trevor and Mitchell have both reflected, we came into this in really great shape. From a product portfolio perspective, we had the best product portfolio, which is the result of years of really targeted D&D investment and investment into really great creative talent that's helped us to establish that. We came into it with a really nicely diversified business with a strong recurring revenue share in our land-based business, as well as a really thriving and scaled digital business, which really helped us.
Of course, we always talk about our balance sheet. We came into it with a really strong balance sheet as well. When we thought about our response, first things first, we did not want to destroy any of that value. We wanted to leverage the strength, and we wanted to make sure that we preserved the value in all of those things. We took an approach of no regrets decisions. It was very early in April. We really did not know how things were going to start to come back, but we could just see that our customers were closing. They were closed down. We did not know when they were going to return.
We took an approach that was very focused on what can we do in the short term to address this, to really minimize our variable cost and to really minimize our cash burn so that we can get through this and to really focus on preserving our liquidity. In terms of the initiatives, as you know, in April, we did talk about how we had furloughed a substantial part of our employee base. It was about 1,000 people in customer-facing roles that were furloughed. We did take a number of no regrets decisions around people exiting the workforce as well. There were about 200 people that left at that point. About 200 people went part-time, so that helped us with our variable cost as well. There were pay cuts of 10%-20%, which applied to about 1,500 people.
Our board and our CEO took more significant pay cuts as well for that period of time. It was really a focus of no regrets, what can we do to sort of manage that cash burn. As you all know as well, we paused our dividend as well. We looked at all of our contractor and consultant spend, and anything that was variable that we could pause without causing any issues to the portfolio, we took those decisions to pause. We managed our CapEx down as well.
A lot of internal projects that we had been focusing on, as we came into this year knowing that we wanted to invest behind certain skill sets like transformation, like data, and so on, we were focusing so heavily on the recovery phase to the crisis that we paused a number of those things. That helped minimize that cash burn as well. As we started to see our customers starting to reopen and we started to see the performance come back in, we were quickly—it's a new term now that we've all had to get used to—unfurloughing people. We returned people to work sooner than we'd anticipated because we wanted to be able to respond to our customers. It was very much that people first, that customer first focus.
We wanted to make sure that we were the ones that the customers could phone up, and we'd have people there who could respond to them and help them reset their floors. Because essentially, there's a lot of talk about people wanting to come out of this very fit to fight and leaner. Of course, we're always focused on that from our perspective. Also, primarily, what we really want to do is make sure that we come out of this in a position where we can take share and we can use the advantages that I've already listed to take share. As we've gone through the remainder of the fiscal year, the majority of the people were unfurloughed through the summer in North America.
Just coming into September, we did look at what's the infrastructure in the organization we need to really take us forward and drive this long-term growth. You will have seen and you will have heard potentially about some smaller activities in land-based around some efficiency measures in land-based, primarily around our remanufacturing sites and some of these more process-driven areas where we were able to make some efficiencies in land-based. We also, having flagged in May that we were going to look at Big Fish in our digital business, took a review of Big Fish, really focusing on what we needed to grow that business going forward. As a result, there were a number of efficiencies taken in Big Fish and putting us in a position to really invest behind that business and grow in a more sustainable way going forward.
Fantastic. Let's drill down into a couple of specific questions. We've got Rohan from MST Marquee, the other Rohan, and Brian from Citi. There are specifically the $100 million cost that we announced in April, they're largely temporary in nature. Should we assume those costs will return in FY 2021?
Yeah, thanks. Thanks, Rohan. When we looked—as I said, when we looked at the measures we were taking in April and we were focusing on what we could do to minimize our cash burn, we do have to acknowledge that the vast majority of our cost base is fixed. It's largely people-based. When we were looking at the furlough positions, for example, that was a way of making some of those costs variable because those staff were then furloughed and were able to seek JobKe eper or unemployment benefits. As they've come back, obviously, those costs have returned. As you can imagine, given the market also reopened and the machines got turned back on, the revenue also started to flow. We made all those decisions very deliberately, knowing that we had the capacity to cover any of those costs that came back in.
A number of those costs were also in relation to, as I said, pausing some of our project spend and refocusing some of our key projects around the portfolio going forward. As we've now seen the strength of the market coming back and we believe in the growth going forward, we've wanted to make sure that we can sort of kickstart some of those projects again and make sure that we don't have a kind of gap in our content or our hardware portfolio going forward. Some of those costs would have returned as well. When we think about the future of Aristocrat and we think about how we've managed to achieve the success we've achieved to date, it has been through that really thoughtful and deliberate and targeted approach to investing for growth, particularly in D&D, which is always our first priority.
That's got us to the position we know we're in with the strong portfolio. We're committed to doing that going forward as well.
We actually, whilst it has been temporary in nature for FY 2020, and a good chunk of those costs will come back, there's obviously been a couple of initiatives you just touched on earlier, in particular, Big Fish and the land-based operations. Can you provide a little bit more detail, as best you can currently, given the market conditions, just in relation to that, please?
Yeah, sure. If I start with the land-based business, we were able to spend the time really reflecting and seeing how the market was returning and seeing what we really needed to focus on in the land-based business. As we saw that, we worked through what do we really need going forward to run this business. We were very deliberate about the areas we were going to focus on. There were about 150 employees that were impacted. In the scheme of things across the whole of Aristocrat, over 6,000 people, it's not a big number. It was much more about making sure that we were coming out of this fit to fight and that we were building in those efficiencies. That took place in early September.
In Big Fish, we mentioned in our release in May that we could see that we had challenges with the Big Fish business in that this was a business that we had not seen the hit rate in terms of new game releases that we wanted to see. We had not seen, if you think about the revenue growth and the profitability that we expect from all of our businesses and growing ahead of category, we could see that we had challenges there. We also reflected on we're a digital business of scale now. Where we have scale, it is tending to be in these very concentrated areas where we benefit from these low-cost jurisdictions, for example, with Plarium and with our live operations. Part of our business is based out of those areas as well.
We looked at Big Fish, and we could see that we had this very high cost, very focused in North America in terms of the employee base. Yet it was very much a library business with those legacy games. We said, "We're really serious about growing this business and the future of this business. We want the capacity to be able to bring in talent and to be able to leverage those different jurisdictions that we operate in and to be able to do these third-party deals where we bring in great creative content." We wanted to build the capacity to do that. We took those actions again in September. That impacted about 250 people in the Big Fish business. That has given us the we're also hiring.
We've also got new leadership in place in the Big Fish business, and we're also hiring to be able to skill up in the different areas that we're going to.
Fantastic. Julie, Trevor mentioned as part of the framework around our response to COVID, and one of that was around the balance sheet and liquidity. Can you touch on liquidity and where we are at at this current point in time?
Sure. But as you know, Rohan, I'm not going to talk about where we're at at this current time because we're kind of in blackout, and we'll be reporting on that in the future. When we reported back in March, we did talk to the successes that we'd had in terms of building up our liquidity. On a pro forma basis, at the end of March, we had $ 1.8 billion in terms of liquidity across cash on hand and the revolver that we had available. We purposefully, in the initial days of the crisis, drew down on our revolver. We also increased our revolver, and we then set about raising additional debt with our incremental term loan fee facility that we talked about back in May. We made sure that liquidity was the primary focus, and it remains our key focus.
We monitor this very, very carefully, and we're very focused on how we can continue to preserve it. We've had, as you know, given we've had strong performance with reopenings coming sooner than we anticipated in North America and also with a strong digital business, which is highly cash generative. We continue to be in a strong position from a liquidity perspective. We're not facing challenges from that perspective in terms of our ability to invest and continue going forward.
Okay. We've received a live question, and it's just confirming around the 600 redundancies overall. I'll just take this one. The business started at around 6,400 people. Unfortunately, 200 people were let go as part of our COVID response. Then you've seen a couple of initiatives, one Big Fish at 250. Across the land-based business, you're talking more like 100-150. Importantly, the business has a growth strategy. The business is still hiring. I would see it more as a reallocation of resourcing for the growth of this business going forward. Julie, this week, you're blessed in the U.S. You've got these debates going on. There's a U.S. federal election coming on. Lucky you guys. We're actually starting to receive increasing questions from the market around if there is a change of government in the United States.
There are proposed changes in corporate tax rates. Now, whether that comes to fruition or not remains to be seen. Given Aristocrat has a significant U.S. presence, can you comment on how that would impact our tax position, both on an effective tax rate for P&L purposes, but also our deferred tax asset from a balance sheet perspective, please?
Sure. Thanks, Rohan. My favorite topic, U.S. tax. Obviously, as you know, given we make the vast majority of our business is in the U.S., we are impacted by any change in the tax rate here. We benefited previously when that tax rate was reduced. We're now in a position having recognized a deferred tax asset at the beginning of this fiscal year, which we reported on in November and May. Obviously, deferred tax assets, as many people know, get revalued when the tax rate changes. A deferred tax asset, where it relates to the U.S., if that U.S. tax rate changes, that changes the amount of deferred tax that you have available. That means that to some extent, that really helps us manage the impact from a cash perspective of any change in tax rate.
Okay. Fantastic. I hope everyone understands that. Finally, from a finance perspective, foreign exchange, we've seen currency move. I think it's been almost a $0.10 spread in the Australian dollar/ U.S. dollar since COVID. We've seen RBA come out recently trying to push the currency down to $ 0.70. In terms of Aristocrat's exposure to FX, can you talk about generally the sensitivities around that?
Yeah, sure. I mean, if you look at our full year results for 2019, we always disclose how much a cent movement has on the bottom line. It was in that kind of $11 million-$12 million range back then. We will update that when we come to report in November this year. It is really, if you think about, I mentioned the $1.8 billion liquidity we had on a pro forma basis at the end of March. That was when the rate was closer to $0.60 . Obviously, the majority of our liquidity is U.S. dollar based. When that rate changes, that changes the value of the liquidity as well. We look at it from both perspectives. We always benefit from a profit perspective from a strong U.S. dollar. That really helps us from the profit perspective.
Of course, we're fortunate that our cash and our debt is also matched in U.S. dollars as well. That kind of manages the impact on the balance sheet side.
Okay. Thanks, Julie. Now, before we start moving into talking about strategic questions for the company, I just want you to visualize Trevor in a black skivvy or a black T-shirt, the customary clothing of our digital operations. Due to time zones, Mike Lang, unfortunately, couldn't join us for this call today. We'll be introducing Mike in future market calls. For now, Trevor, if we just touch on digital, Jamie from DNR Capital, Thi from Equity Trustees out of Brisbane and Melbourne, respectively, asked about the potential impacts around the proposed iOS 14 privacy changes on our digital business.
Yeah. Thanks, Jamie. Thanks, Thi. iOS or IDFA, excuse me, still very early days. You would have seen recently that that's been pushed into the new calendar year. Apple's pushed it out due to a fair bit of public pressure around that. The concept around opting in is still very uncertain from a product point of view and even down to how does that impact the way we make and present games to players. We continue to monitor it. Obviously, stay up to date with it with partners like Apple, also talking with Facebook and Google as to what their positions are likely to be on a similar sort of solution to manage privacy from a platform point of view.
We've obviously got internal working groups looking at it, looking at it from a technical point of view, looking at ways that we can mitigate and also how it may have an impact to our gameplay. It is live, and we continue to stay in dialogue with Apple directly and also looking at other platforms to see what their likely trends would be. We will provide more details as we can get to more certainty. I think it's fair to say, given the late shift in the delivery of that, there's a lot of interest from a lot of game developers and platform operators as to what this will mean from an operational point of view.
Trevor, from your perspective, operationally, how are you seeing the digital operations in FY 2020?
I think the digital team did a great job in FY 2020. If you look at the way they've scaled RAID, that game now is probably run rating according to Sensor Tower and App Annie at sort of $350 million per annum. We have seen great growth from that. With the launch of EverMerge, both in test launch and then into launch, and again seeing good scaling from EverMerge from a new app point of view. I've been impressed by the team's response. We have spoken to the market a couple of times now about our lack of competitiveness in our traditional land-based business, sorry, our Product Madness business that did not have enough features, was not good in the LiveOps space. We have spent time building those capabilities and teams and really have seen strong performance.
In fact, Eilers Krejcik sort of give us a bit of a tick for having strong growth in the social casino over the second quarter. I think we continue to see that growing through. The diversification of the genres, when you think about EverMerge was moving into a new genre, which is outside of some of the traditional sim, not sim, casual genres we're in, and also the strength that we've seen in the RAID portfolio, which is a new genre built off of the platform. The RPG collectibles was a good component to learn on for us to learn and develop as well. I think the other piece is under Mike Lang's leadership, we're seeing a lot more of the learnings across the digital team now being shared across the group.
That is providing good insight into both where we're spending our user acquisition, how we're thinking about LiveOps and building capability at speed for the digital businesses. The shelter in place from COVID was definitely an impact in the early stages. We saw that increase of 20% in April, on March, and that sort of held through May, June. We have continued to see strong but not as strong COVID shelter at home opportunities for entertainment for players from a mobile device point of view. I think when we talk about DAU, DAU is really going to come from a risk-prepped portfolio from new games. The legacy titles are starting to slow. That is a natural drain on our DAU. We are seeing good growth through user acquisition into new titles like RAID and like EverMerge.
We expect to continue to grow our DAU by launching new titles and investing strongly with UA to do that. I think really the final piece here is continuing to build the pipeline. We have about 10-15 games that we are working on at any one point in time. We now have another three games currently in soft launch and continuing to test and refine those, plus other games coming through from a development point of view. Really building that pipeline into 2020 into 2021 and also continuing to build up the talent and capability to deliver on that pipeline as well.
Trevor, Julie touched on the big efficiency program. Let's turn our attention to Plarium. Brian from Citi asked, how do you see the performance of RAID generally? And when does it plateau and move into profitability?
Yeah. Great question, Brian. I think we would have been saying potentially plateauing in profitability in March, April, but then COVID happened. It changed the perspective from our side. As I said earlier, we're seeing about $350 million annualized revenue from the game. We're still able to effectively scale it with good UA investment. Whilst we're opportunistically looking at scaling it, I think we are at a point now where we're not far from turning to profit. I expect that will be in this half. It has certainly scaled to a great-sized brand and very popular brand in the Western markets.
Fantastic. Trevor, you touched on it earlier, but specifically, what about the performance of social casino?
Yeah. Like I said earlier, I think the social casino business has been a strong business for us. As I said, we had to address features and LiveOps, which we did. We've seen that improve our performance as a whole. We've also increased the cadence of game releases into the apps, taking our great land-based content and moving that into the apps as well. Overall, I've been very happy with that performance. As I said, in my opinion, we've been taking share. As reported by Eilers & Krejcik , it seems that we have been taking share in the social casino market, which is a good result for our team. I would say that the results sort of peaked around May from a revenue or bookings point of view. As we've worked from home, started to wind back a little bit. We've seen less play.
By the same token, it's still staying above where we were last year.
Trevor, a popular sell-side question. Social casino, it's a higher margin genre traditionally. Obviously, it's enjoyed some significant growth. What does that do in terms of short-term margins for the business?
Yeah. Look, everyone knows we're not going to get into the guidance side of this. I'll get back to the short question. From a short-term point of view, it's really around product mix and UA. Whilst we are seeing good margins from a social casino point of view, and we've always seen that as we're investing behind new portfolio and launching games into the portfolio like EverMerge and investing strongly against RAID, that is having a downward pressure on margins generally. We are seeing good benefit coming through over the period of time when you think about both the positivity in the social casino and then the reinvestment back into RAID, EverMerge, and other games as we're looking to scale those.
Fantastic. Trevor, we've got a live question. Are you happy with the direction of the social casual portfolio?
I'm happy with the direction, but I'd like it to go faster. I think where we are is we are moving, and to Julie's point around some of the changes we've made at Big Fish, we're around accelerating our ability to build out the social portfolio. I think it's done a great job and will show some strong results for the year. I think we can go faster in that. That's where the focus is now with around building the talent, acquiring extra talent, and the focus around leveraging our genres, whether it's leveraging on top of the capabilities around the strategy, RPG, and action genre, or broader into the casual genre where we believe there's still more opportunity to build our portfolio as a whole.
Okay. Trevor, this is probably a good time to pivot across to the strategic segment of the call. Just firstly, the strategy. Has it changed as a result of COVID?
No. No, it hasn't changed. In fact, COVID has actually reinforced the strategy of the organization. Our diversified model of land-based and digital has proven that through this period of time, it's the right strategy for our organization. It still remains more current as we move through this period of time towards the future. Both businesses are asset-light and cash flow generative. We see the opportunity to continue to invest. As Mitchell spoke about, the importance of investing behind D&D in our land-based business, investing behind UA in our digital business to continue to drive growth across our portfolio as a whole. We still see ourselves as a growth business and believe that we can continue to invest to be a growth business.
Using M&A to accelerate growth as we have done in the past with acquisitions like Product Madness and VGT, and more recently, Plarium and Big Fish.
Trevor, Mitch talked on the fact that operationally we're in great shape given the events. Julie's touched on financially we're in great shape given the events, subject to disclosure, which deferred to November for that. What does that mean strategically in terms of growth? We've got a number of questions from Melinda from Bank of America, Jamie from DNR Capital, and so on. What are the highest priorities in terms of step-out opportunities for the business to accelerate its growth over the next few years?
Yeah. Thanks for those questions. We see growth across both of our portfolios, the land-based and the digital business. If you just walk through the land-based opportunities, we still believe there's share to be taken in gaming ops and for sale in markets predominantly in North America. We still see the opportunity to take share and feel confident about that. We also see the opportunity to push into further adjacencies. You've heard about us talk about entering VLT and other adjacent markets. We've entered Illinois in the last half. It is only to enter some of those markets, continue to expand our footprint, and grow our in-store base as well.
Also, building on the technical capability, Mitchell spoke about that customer experience, but technical capability around things like contactless payments and interactions, which have come through as a consequence of the COVID requirements from operators' points of view and investing in that area as a way of providing solutions. This does open up opportunity in new markets. RMG, ETGs are all opportunities that can be considered for us for growth longer term as well. I think where we get to on that is, well, is that a build-by-partner solution? You did not talk about the digital teams. I mean, digital still has got growth organically. As I said, we have done some work over the year, particularly in the social casino piece. We are now setting the casual business up for strong growth and the ability to scale.
Now looking at where do we look for talent and using a very similar approach to the way that we build our land-based business, which was securing key talent and then allowing them the opportunity to develop product and then our ability to scale that product and make it successful across the group. As I said earlier, we've got three games currently in soft launch: 8 Ball Smash, Mech Arena, and Magic Wars. They're going through the traditional soft launch. If they continue to scale and we have the metrics behind it, then we'll be looking to invest in those going forward as well. That pipeline's there.
From a digital point of view, I think it's more about continuing to refine the pipeline we've got and invest in that, look for new talent and new opportunities to build out the broader growth to that earlier question about where we sit about it, and then looking at how do we leverage the current strengths across the group to actually get benefits across the group going forward as well.
In terms of appetite for M&A, Larry from Credit Suisse out of Melbourne, Don from JP Morgan's South Coast office, and others offshore have written several recent reports about real money gaming, iGaming, sports betting, and so on. Is this an area of interest to Aristocrat? If so, what do you see the options going forward for the business?
Yeah. Look, we've been monitoring this area, iGaming, RMG for a period of number of years now. We continue to monitor what's going on. As I said earlier, we are seeing convergence, and we're seeing more of that convergence. Really what informs us in a lot of these scenarios is listening to what our customers are saying, what the customers are seeking from us as a provider going forward. I think in terms of sports betting, it's a little bit more complicated. It's less attractive than the RMG and iGaming space, but it still is a requirement that our customers are talking about and something that we're seeing natural momentum and certainly interest around.
I'm not probably less excited about the sports betting, but certainly around RMG and iGaming, there's a logic when you think about content, distribution, and technology, which is really part of our core business operating model. We are continuing to do the work, and we'll definitely keep you updated as we see the market, how we see the market, and if and when and how we may enter that market as well.
Trevor, we tend to focus more on our customers here at Aristocrat. A common question from the market, Anthony from CLSA, Raymond from Maple-Brown Abbott, David from Macquarie. We've got a live question on the call around senior management talent and recent competitor announcements and major shareholding changes and the implications for Aristocrat. What's your take on all of this?
The first thing I'd say is that we're confident about our strategy. I'm confident about our team's capability and the will to win regardless of who we're competing against. Competition is part of every business, every life. At the end of the day, we're comfortable with our strategy, our people, and our approach to doing that. It's more about what we can control. We're not really worried about what they're doing and what they're thinking and saying, but it's about what do our customers need? How do we make sure we provide a better and faster solution for our customers and use the investment and capacity that we have in our D&D investment from a land-based point of view to continue to provide a pipeline of great games and success going forward?
We've also got the balance sheet, as Julie spoke about, and liquidity to give ourselves the flexibility to be partners and to take the opportunity to invest in the right priorities for our organization today and into the future as well. Honestly, from my perspective, I think some of the structural changes that have happened are always going to happen at some point in time. From my point of view, I am very confident with our strategy. I am extremely confident with our team and their capability and their will to win. We are going to continue to play this like we have on a long-term sustainable growth and play and continue to invest against our strategy and make sure we are successful.
Thanks, Trevor. We've got a live question in regards to our strengths operationally and financially could lead to further industry consolidation. We've touched on an appetite for M&A. Mitch, how do you see potential consolidation opportunities across the industry from a land-based perspective?
I think everybody's seeing what's happening on the operator side. We've obviously seen Eldo and Caesars, and we've seen the latest one around William Hill and those sorts of convergent pieces. I mean, as Trevor talked about and as we've talked about on the call, we've got significant share-taking growth opportunities. We focus on what we can control. Really, D&D becomes our priority investment to ensure we're giving our customers what they need. Yeah, I don't want to speculate on what that consolidation looks like. I'd just say we're going to continue to do what we do, continue to take share, and continue to deliver the best product portfolio and commercialization solutions in the marketplace.
Okay. Thank you. I'm conscious of time. The live questions have been coming through. I feel like we've answered the vast majority of that. As we draw towards the end of the call, Trevor, this is an unfortunate situation, COVID. From an operational point of view, from a company perspective, what are the positives that you're taking out of this situation? What have we delivered on from your perspective? Similarly, what do you see as the most significant unique challenges that Aristocrat faces over the short to medium term?
Yeah. Thanks, Rohan. Look, there's a lot of positives. It's been thrust on us, and there's no playbook. There's been a lot of positives. One of the highlights for me has been our people. They've just been amazing the way that they've adapted quickly and efficiently and staying very principled about ensuring that our customers were at the heart of everything we thought and did. I've got to put my hand up and say our people have been a true differentiator. Their quality and commitment to the organization through this period of time has been unbelievable. I think our people have been a highlight. I think the other highlights for me is this has actually highlighted the quality of the portfolio. Mitchell talked about the number of machines that are on, the performance that's occurring in the land-based world.
We've talked to you a lot about the D&D investment, but this has highlighted where operators have the choice to switch machines on or not, what they're doing. They're going with the machines that are delivering. I think that's reinforced the quality of our investment in D&D, not just in hardware, but in the games and the portfolio. I think the other piece to that is building it from an operator's point of view is it's perhaps reinforced the value of the EGMs to their overall revenue streams and sustainability in the short term. I think that has created, for me, a lot more energy around our category within the casino business. I look forward to continuing to leverage that with Mitchell over the next couple of years as well. I think that's been a great strength.
We came into this in a strong position from a balance sheet point of view. I think we've been able to certainly maintain that and to make sure that we're investing against the right options and creating optionality for ourselves going forward, whether it's around supporting our customers or looking at further investments or other strategies to continue to grow the organization as a whole. Digital has really pivoted very quickly when you look at the ramp-up that happened in the digital category as a consequence from work from home and then broader sustainability of that category. The new games launch and the scaling of that digital team under Mike Lang has seen some really good momentum coming into the organization, which has given us more flexibility because of the diversified strategy we've got. I think about some of the challenges.
I mean, the challenges are there, and they still remain. It is the health and safety of our people. We are not the only company or group in the world that are thinking about this. It is the health and safety of our people and the ability to provide them an opportunity to continue to work and be supported and support our customers and their customers going forward. Also, there has been a lot of uncertainty about the short to medium term. Like many businesses, we are continuing to watch our optionality and continue to maintain optionality so that we can be flexible and be able to respond as we need to through this.
I think the other learning and benefit from this, from my point of view, is that—oh, sorry—the weakness is that we are going to see a decline in for sale in the near term or a compression, I think was the word that Mitchell said. That uncertainty is difficult to predict, but that's offset by the strength in the gaming ops portfolio and the investment and performance of the gaming ops portfolio. To be frank with you, and I've said it before, I'm actually more excited about the next five years for Aristocrat than the last five years. I say that because this is an opportunity for us to build on our strengths, to leverage our investments, and to create this diversified organization with the ability to provide strong growth from its core and preserve optionality for further growth through accelerating—sorry—accelerating growth through further M&A.
I'm quite excited about the next five years. It's a shame we don't get to see you and share some of our great product and portfolio at the moment, but it is something that I'm very proud of. I spent a couple of days this week wandering around with the studios looking at some of their games and content. I'm very proud of what the team continues to do in these tough times and believe that our refresh portfolio, our focus, and our investment are the right things for the business going forward.
Thanks, Trevor. I'm conscious of time. I'd just like to thank our panelists today: Trevor, Julie, Mitchell. Thank you for your time. I'd like to also thank and recognize the people behind the scenes: Donna, Penny, Reuben, Francis for all their efforts in helping bring this together. I'd also like to thank the 125 attendees on the call today. This is a new initiative for us. It's our way of trying to bridge that gap under this new normal, to say. We are always seeking constructive—dare I say it—constructive feedback to continuously improve our process. With that, we really appreciate your interest and your time. Please stay safe. Take care. On behalf of Aristocrat, thank you for your time. Cheers.
Thank you, everybody. Thank you.
Good.