Thank you for standing by. Welcome to the Aristocrat Half Year 2023 Results Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the Star key followed by one on your telephone keypad. I would now like to hand the conference over to Mr. Trevor Croker, Chief Executive Officer and Managing Director. Please go ahead.
Good morning, welcome to Aristocrat's financial results presentation for the half year to March 31st, 2023. My name is Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. I'd like to begin today by acknowledging the Wallumettagal clan of the Eora people, traditional owners of the land on which we meet here in Sydney today, and I pay my respects to elders past, present, and emerging. It is a pleasure to present Aristocrat's half year results today. With me in Sydney is Sally Denby, our Chief Financial Officer, and Mitchell Bowen, CEO of Anaxi and Chief Transformation Officer. Hector Fernandez, CEO of Aristocrat Gaming, and Mike Lang, CEO of Pixel United, have also joined us on the line. We hope you all had the chance to listen to our market call on Monday announcing the proposed acquisition of NeoGames.
While we are very excited about this transformational acquisition, today we are here to discuss our half year results, although we will be happy to take further questions on NeoGames during Q&A. Before we begin, please note the usual disclaimer statement at the back of the presentation deck. Today, I will step through highlights of the results and provide an update on strategy and our ESG priorities. Sally will then discuss our group financial results and balance sheet. After which, I'll run through the operational performance and outlook. Turning now to slide two. I'm pleased to share that Aristocrat delivered a quality result over the period, demonstrating the ongoing resilience, competitiveness, and diversification of our portfolio. We have delivered a strong portfolio result, even as we navigate challenging market conditions and continue to invest fully behind our successful growth strategy.
Our teams faced into considerable economic and political volatility over the half, including the continuation of the conflict in Ukraine, where the support of our people and their families in the region remains our utmost importance to us all. The Pixel United team managed this challenge with empathy and effectiveness and will continue to do so as the conflict unfolds. Turning to revenue. We reported 12% revenue growth at group level compared to the prior corresponding period or PCP, driven by our continued strong performance, the Aristocrat Gaming Americas business, partly offset by more challenging mobile game market conditions for Pixel United. While EBITDA margins were lower than PCP, they were around 2 percentage points higher than the second half of fiscal year 2022 as supply chain pressures in our gaming business that we've previously discussed appear to be easing.
Pixel United's margins were impacted by the softer operating environment. The group's NPATA result of around AUD 660 million represents a profit improvement of 14% in reported terms and 5% in constant currency compared to the PCP. Our strong free cash flow generation was applied to fund Aristocrat's growth plans, while surplus cash has been appropriately returned to shareholders, including through dividends and on-market share buybacks in line with the group's capital allocation framework. We also continue to monitor the macroeconomic environment and consumer sentiment closely and continue to believe that our diversified portfolio provides resilience through economic cycles. In terms of outlook, Aristocrat's guidance to deliver NPATA growth over the full year to September 30th 2023 remains unchanged, assuming no material change in economic and industry conditions. I'll return to provide more detail on our outlook expectations at the end of this presentation.
Turning to slide four. The benefit of our investments to grow and diversify Aristocrat's revenue base was particularly evident in our ability to deliver solid revenue growth and stable EBITDA in constant currency at group level over the half. Strength in gaming more than offset continued industry-wide moderation in mobile game demand at Pixel United, again, pointing to the fundamental strength of our diverse operations. We continue to invest to grow in attractive adjacencies and verticals as we build further resilience in our operating portfolio, including through online RMG, where the proposed acquisition of NeoGames effectively completes our build and buy strategy. Aristocrat consistently invests in talent, technology, and innovation. This once again delivered above industry performance in key segments and drove market share gains across both gaming and Pixel United.
Some portfolio highlights for each business are referenced on the right-hand side of the slide, and you'll note a number of other references to our leading and improving market share positions throughout the presentation. We also took significant steps forward in our ambitious ESG commitments, which I'll return to shortly. These efforts align with our strategy and commitment to sustain success over the long term, while we continue to focus on actively executing our capital management framework. Sally will share more on this shortly. Turning to slide five . Aristocrat's approach to sustainability is anchored in our most material ESG priorities across the pillars of business operations, product responsibility, people, and community. It aims to achieve our vision of being a vibrant business operating within sustainable industries that is able to deliver benefits to our shareholders and other stakeholders over the long term.
We continued to make meaningful strides forward against our priorities over the reporting period. This included significant progress towards setting and communicating a rigorous group-wide, science-based emissions reduction target by the end of calendar 2023, in line with our commitment. Responsible gameplay remains Aristocrat's highest sustainability priority. It is increasingly part of the DNA of our organization, and we regard it as vital to delivery of our group growth strategy. We fully recognize the reality of excessive gambling and gameplay, including the terrible impact of addictions and associated harms experienced by some individuals and their families. Our response is an approach that is focused on aligning core business systems, processes, policies, and actions to match our commitments in every one of our businesses. A good example is our Australian-first trial of cashless EGM technology, which is running with the support of the New South Wales government and a major customer.
It was expanded during the period to include around 140 EGMs. Finally, we also published our annual Modern Slavery Statement, providing more detail on the comprehensive steps we are taking to recognize, assess, and minimize these risks across our supply chains. In summary, Aristocrat is proud of the progress we are making in our sustainability agenda, while recognizing that we have much left to do. I'll now hand over to Sally, who will take us through the summary of the group numbers and provide an update on capital and our balance sheet.
Thank you, Trevor, and good morning, everyone. Turning to slide seven, our group results summary. Over the six months to March 31st, 2023, Aristocrat delivered NPATA of almost AUD 660 million. This represents an increase of 14% in reported terms and 5% in constant currency compared to the PCP. On a fully diluted EPS basis, growth was also strong, increasing 17% in reported currency. Revenue increased 12% to almost AUD 3.1 billion. On a constant currency basis, revenue was 5% higher than PCP, reflecting exceptional performance in North American gaming operations and global outright sales. Pixel United demonstrated resilience in a challenging environment against the backdrop of an industry-wide moderation in mobile game demand and the conflict in the Ukraine.
With productivity in the Ukraine recovering, the drag from the exit of Russia behind us, and softer comparative base numbers, we continue to expect to see improvement in Pixel United's performance over the second half. EBITDA was 6% higher than the PCP and down 2% in constant currency. Operating cash flow of over AUD 610 million was comfortably above the PCP. This reflected strong underlying business performance and higher interest income, partly offset by other increases in working capital, principally due to timing of receivables and higher inventory. We continue to return excess cash to shareholders with AUD 338 million returned through dividends and on-market share buybacks in the period. The directors have authorized a fully franked half-year dividend of AUD 0.30 per share in respect of the period ended of March 31st, 2023. I'll now move to slide eight.
The slide provides a snapshot of the key drivers of NPATA over the reporting period compared with the PCP. As you will observe, the profit increase from Aristocrat Gaming, driven by the growth in the premium Class III gaming operations install base and outright sales in the Americas, was roughly equivalent to the decrease in Pixel United's post-tax earnings, reflecting softer industry demand, as previously referenced. Trevor will share more details on these operations shortly. There are some non-operational features that I would also like to highlight. NPATA growth benefited from higher interest income arising from the rapid increase in interest rates. This is evident in corporate cost in the chart.Ou r strong investments in talent and technology increased our D&D expenses from 11.4%- 12.1% of revenue as we built out the Anaxi business to support market entry commitments.
This increased D&D expense represents an additional AUD 30 million NPATA investment in future growth. While our NPATA grew at mid-single digits over the period in constant currency, foreign exchange translation also positively impacted the results. Turning now to cash flows on slide nine. I wanted to highlight the increase in net working capital, which has been a feature in recent halves. To ensure customer order fulfillment and support strong growth at Aristocrat Gaming, we've maintained inventory at higher levels. This was a proactive decision that has been recognized by our customers. Aristocrat returned AUD 166 million to shareholders in the form of share buybacks during the half. At the period end, Aristocrat completed 48% of our AUD 1 billion on-market share buyback program, which earlier this week we increased to AUD 1.5 billion.
Turning now to our capital investment priorities on Slide 10. Aristocrat continues to focus capital allocation on supporting our long-term growth strategy and maximizing shareholder returns. In particular, the business drives organic growth through consistently strong and disciplined D&D spend, UA, and CapEx investments, while also pursuing strategic M&A opportunities to accelerate progress in line with our rigorous criteria. Over the reporting period, Aristocrat invested AUD 372 million in D&D to further strengthen our product portfolios and support our entry into online RMG. This is tracking slightly above the upper end of our 11%-12% target range and is in line with our modeling inputs. You will observe that Anaxi invested AUD 42 million in D&D across online RMG and CXS. This is a new data point provided with the result in the D&D slide in the appendix.
Other startup costs for Anaxi were included in the gaming results. We also invested $240 million in UA to drive our mobile portfolio performance, representing 27% of Pixel United revenue, in line with our guidance. The strong net cash position of $440 million on our balance sheet at the end of the period is comparable to the previous half. Capital management remains a key focus as we manage our balance sheet through cycles of investment in inorganic growth. We are targeting a leverage ratio representing net debt to EBITDA of 1x-2x over the medium term, with the flexibility to move outside this range for strategically attractive acquisitions in line with our historical approach. The proposed acquisition of NeoGames is expected to raise our leverage ratio to 0.7x on a pro forma basis.
This still provides the flexibility to return cash to shareholders through dividends and on-market share buybacks, as demonstrated by the announced increase in our buyback program, and to consider further strategic M&A where appropriate. This completes the overview of group results. I will now hand back to Trevor, who will step through the operational performance.
Thank you, Sally. Turning to the Aristocrat Gaming business on Slide 12. Aristocrat Gaming revenue and profits grew 23% and 17% respectively in reported terms, reflecting continued penetration of our high-performing games and cabinets and another strong performance in North America. In the Americas segment, revenue increased 17% and profits by 12%. The standout performance was a significant lift in North America unit sales, increasing 27% compared to the PCP, to a record level that is now around 50% higher than the pre-COVID unit sales. Outright sales, overall revenue growth of 46% also benefit from a 21% lift in ASP to over $21,000. This performance was driven by growth in customer capital commitments and penetration of new hardware, along with successful growth in priority adjacencies such as historical horse racing and New York Lottery.
Gaming operations revenue increased 7%, driven by a 9% increase in our install base over the prior period, with particular strength in Class III premium, offset by a slightly lower average fee per day and mix changes within the portfolio. The gaming operations footprint grew to over 61,000 units, with continued penetration of leading hardware configurations and high-performing game titles driving this momentum. Aristocrat Gaming continued to deliver strong game performance across the portfolio in North America, running at 1.4x floor average during the period and exceeding all major competitors. Margins contracted 2.6 percentage points compared to the PCP to 55.3%, reflecting product mix given strong growth in lower-margin outright sales and also higher input costs driven by previously flagged supply chain challenges in 2022.
I'm pleased to point out that the margin reported for the period was higher than the second half of fiscal year 2022 by a percentage point, reflecting some moderation of supply chain pressures experienced last year. We expect input cost pressures to continue to ease as the year progresses and as we work through high-cost inventory positions. In ANZ, revenue was relatively flat in constant currency compared to the PCP, while overall profits decreased by 16%. Similar to the experience in North America, ANZ margins recovered by close to seven percentage points compared to the second half of fiscal 2022, reflecting easing cost pressures. Not shown in this slide, we're also encouraged by the recovery of our international Class III operations, which reported over 30% increase in revenues on a PCP in constant currency.
In summary, the global gaming business delivered another high-quality performance driven by exceptional cabinet and game portfolios and effective commercial execution, particularly in our North American operations. Moving now to Pixel United on Slide 13. Pixel United delivered a resilient performance despite a challenging environment and continued to gain market share in the half. Revenue declined by 7% and profits were at 16% lower, as strength in social casino was more than offset by softness in RPG, strategy, and casual games. Margins declined 3.1 percentage points, reflecting negative operating leverage driven by lower overall bookings, our exit from the high-margin Russian market, and a reduction in bookings from some higher-margin legacy products, along with costs associated with the conflict in Ukraine.
This was partially offset by effective and dynamic UA allocation and an increased contribution from Plarium Play, which now accounts for around 31% of Plarium revenues, up from 27% in the second half of 2022. Continued investment in Live Ops, features, and new content, combined with effective player engagement, was reflected in share gains in the key social casino genre, with the business maintaining its position as a top five mobile publisher in Tier 1 Western markets. Pixel United retained its number one global position in Social Slots. Social casino bookings were relatively flat against a weaker market, driven primarily by the strong growth of Lightning Link and the ongoing resilient performance of Jackpot Magic Slots. RPG, strategy, and action bookings declined 11%, reflecting our exit from Russia and a decline in revenues from Raid and Vikings.
We're encouraged to see that revenues from RAID were higher in the reporting period compared to the second half of last year. Casual games experienced a decrease of 22% in bookings, reflecting the maturity of our casual portfolio, a focus on effective UA allocation, and moderating demand in the genre. Pixel United has continued to execute on its longer-term growth strategy with innovative diversification of marketing across platforms and channels in response to the evolving mobile game market structure and escalating CPIs. Some recent initiatives include partnerships with Brazilian footballer Neymar and WWE wrestler Ronda Rousey on the recently announced 10-part animated series, RAID: Call of the Arbiter, which will shortly premiere on YouTube. Investments were also made to further bolster core game development, operational and leadership capabilities, and to broaden our presence in key talent markets globally. Pixel United continued to focus on long-term value and maximizing portfolio profitability.
As we've shared previously, Pixel United aims to have 10 games-15 games qualified to enter active development at any time and to grow this pipeline over time. 3-5 of these titles could be launched over a two-year period with launch timing dynamic and subject to a range of variables to maximize chances of success. The worldwide launch of Merge Gardens in October 2022 was a good example of this disciplined approach. Turning now to Slide 14, which provides some context on Pixel United's performance against the global market. We shared this slide at our fiscal 2022 presentation last year, and we've added performance over the first six months of the current year. It highlights an extended period of market share gains over the four years to 2022, with Pixel United delivering a CAGR of 16% compared to the market CAGR of 12%.
These market share gains extended into the first half of 2023. Looking at the half-year numbers, there are two important features to highlight. Firstly, the global mobile games market declined 10% on the same period last year compared to an approximate 7% decline for Pixel United. This reduction partly reflects the disruption stemming from the conflict in Ukraine towards the end of first half 2022, which occurred against the backdrop of moderating demand. The slowdown was evident in a number of soft monthly performances in the second half of fiscal 2022. Secondly, the global market appears to have now stabilized, evidenced in the market only declining 1% compared to the previous six-month period. Encouragingly, Pixel United grew bookings by 1% over the same period. This reflects some stabilization as we start cycling over lower comparative numbers.
I would now like to say a few words about our online RNG division, Anaxi, and the progress we've made since establishing it in October last year. Moving to Slide 15. The half was a busy period for Anaxi, and we're really pleased with the progress on many fronts. We delivered our market entry commitments, establishing sound foundations from which we will now grow and scale over time. As previously shared, we signed content agreements with BetMGM, Caesars Sportsbook and Casino, and PENN Entertainment. Most recently, we added Flutter to the list of partners, enabling it to offer leading content across FanDuel's online RNG platform in four states. Our games are live with BetMGM and PENN in New Jersey, and we have exciting plans to add more games in due course as we prove our performance and refine our offer.
Early industry data on a small sample is highly encouraging and validates our hypothesis that our market-leading land-based content will resonate well online. We've now signed content agreements with partners representing 55% of the iGaming market in the U.S. We anticipate signing additional agreements over the year. We are comfortably on course to exceed our target of penetrating at least 70% of regulated jurisdictions across North America over the next five years. We also closed on our acquisition of Roxor Gaming in January, and the integration continues to progress well. We expect Roxor Gaming's highly scalable and feature-rich Remote Game Server and content publishing technology to accelerate Anaxi's strategy to grow in the iGaming market. Roxor is currently live in the U.K., New Jersey, and was recently launched in Ontario.
Additionally, we're proud of Anaxi's first of its kind mobile on-premise solution for tribal gaming operators, which allows patrons to connect and play Aristocrat Class II gaming content via their mobile devices anywhere on trust land. Finally, while we made significant strides in building our RNG capabilities and business over the half, we are very excited about the proposed acquisition of NeoGames. We believe this will truly be transformational for Aristocrat, laying the foundation to fulfill our ambition to be a global leader in online RNG. The combination of Aristocrat's market-leading content and deep customer relationships across our gaming and digital businesses with NeoGames technology and platforms will enable us to accelerate our content distribution globally, position us as a technology partner of choice with online RNG customers, and ultimately create an additional sustainable growth engine for the group.
In summary, we remain steadfast in our view that online RNG is a logical and complementary growth and diversification opportunity for the group to leverage our leading land-based content across a new and growing distribution channel. While it remains early days, we're excited about our growth prospects in online RNG. Moving now to outlook on Slide 17.
Aristocrat's guidance to deliver NPATA growth over the full year to September 30th, 2023 remains unchanged, assuming no material change in economic and industry conditions reflecting: continued strong revenue and profit growth from Aristocrat Gaming underpinned by market-leading positions and recurring revenue drivers in gaming operations, improved second half of fiscal 2023 profit compared to PCP from Pixel United, with full year expected to be moderately below the level reported in fiscal 2022 in local currency, and further investment in Anaxi to support our online RNG ambitions. Over the medium term, Aristocrat aims to continue to gain market share in all key segments, deliver high-quality, profitable growth, continue to invest in D&D to improve competitiveness and breadth of product, invest to diversify our business in line with our strategy, and effectively manage capital, support long-term growth, and maximize shareholder returns.
In summary, the group has delivered a strong and resilient result for the first half of fiscal 2023, demonstrating excellent fundamentals and strong operational momentum despite ongoing challenges and uncertainties. Our performance highlights the incredible resilience and commitment of our team of over 7,500 people around the world. I want to thank each of our employees for their hard work and their dedication to both the company and to each other throughout the period. I'll conclude the formal presentation and hand back to the moderator to open the line for questions. For the benefit of others on the call, please limit yourself to two questions before rejoining the queue if you wish.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Rohan Sundram from MST Financial. Please go ahead.
Hi, team. Thanks for that. I'll start with Trevor. How would you describe the outlook in land-based at the moment, and how would you rate your forward visibility, in particularly the recovery you're seeing in the rest of world markets at the moment?
Rohan, I got some of it. It's very hard to hear you. I heard how would you rate the outlook and forward visibility? After that, I couldn't hear much more.
No, sorry about that. My bad. I'll start again. Yeah, just mainly how in land-based-
Oh, that's much better.
Yeah. I forgot to press speaker. How would you rate your forward visibility in land-based at the moment? The rest of world result was very strong. How would you describe that recovery that you're seeing in rest of world markets? Thanks.
Yeah. Thanks, Rohan. Appreciate the question. I'll make a couple comments and then just pass to Hector. I think, yeah, as we've progressed at Aristocrat over the last couple of years, we've been building in better systems and processes around forecasting visibility and tools. We now come to meetings like this and the way we run the business with a much better visibility of what we're doing. Not to diminish the fact that we've got a high percentage of our business in recurring revenue, we're very confident from that perspective. On a rest of world, yeah, it's, it was great to see Europe reopening and starting to see the momentum building there and also some good share taking in the Asian markets with new games and also with particularly markets like the Philippines and Singapore.
With that, I'll just hand over to Hector, maybe just give a little bit more context. We do feel very confident about our visibility of the pipeline.
Thank you, Trevor. Thank you, Rohan. Absolutely, just to reiterate what Trevor said, it was really good to see EMEA start to open back up, start to see strong demand. We participated in ICE again this year and a lot of customers interested in our product again. The restrictions are mostly lifted across the EMEA region and starting to see strong performance there. The other piece that I would share with you that gives us confidence is we've talked about introducing more of a recurring revenue model into both ANZ and Asia, and we had some pretty good success in this last half in doing so. It's really a validation of our strategy relative to producing industry-leading content for our customers that overall drive their, you know, their venues and their casinos of value.
We feel pretty confident in the recovery that we've seen in the rest of the world, but also in our ability to introduce a recurring revenue model across ANZ and Asia and MEA and Latin America.
Thanks, Hector. I guess on the Americas result was quite a good one, and we're seeing good strength in the game ops business. How would you describe that half? It looked like a very heavy period for Class III installs, we saw it looks like Class II went backwards and the blended fee per day was down. Should we actually look into that too much, given it was such a heavy period of installs in Class III?
I'll make a couple of comments, Rohan, and then get Sally just to talk to you around the fee per day. I think the key thing to focus on here is the size of the install base and then also the fact that we've grown that install base by 9 percentage points over the period, which is market-leading install growth when you look at the size of the market. I think it's important to think of it from that context. Sally might make some comments around the fee per day just from a comparison point of view.
The underlying fee per day remains solid. There are many inputs into this, including accounting adjustments, which drive the movements in the period. We don't typically talk to these, things like jackpot liability provisions move over the course of the year and therefore have an impact on the fee per day. Again, we're comfortable with the underlying fee per day. We're in a solid, stable position with that.
All right. Thank you, team.
Thank you. Your next question comes from Adrian Lemme from Citi. Please go ahead.
Good morning, Trevor and team. Just firstly, on the mobile market, it's great to see Pixel, you know, outperforming. From the data we've seen to March, the digital market looks like it's basically flat on pre-COVID levels, whereas pre-COVID it was growing at, you know, 20% or so. What factors would you put this down to? Should we expect that the market growth going forward is gonna be much lower than history, please, thanks?
Thanks, Adrian. I'll make a couple of comments and then Mike might weigh in. First of all, I think we've got to go back a couple of years and look at what happened with the COVID period where we saw accelerated growth in the mobile market. We were tracking towards 12%-14% CAGR pre-COVID. That went up to circa 20+. We saw that as a consequence of, you know, the stay-at-home, et cetera. Since then, we've seen it moderating back as people have had more alternatives to their leisure time and time outside of their home. It has come back, and it's now looking like a more moderate growth rate. I'll hand to Mike on the context of, you know, for future growth from that perspective.
Hey there. Thanks for the question. As we look at the market going forward, we believe that we're going through a transition cycle. In many ways, we have accelerated into it because of the significant growth in the industry. As a result, as what's been seen typically within the video game industry, new innovations, new products, new platforms, new marketing then drive the business forward. We anticipate that that will happen, but that you're gonna probably see moderate growth in the near term until you see those changes overall. You know, generally from our perspective, though, we are still remain very bullish on the business. We believe it's about great new product, strong Live Ops, and ability to differentiate your marketing in relative to your peers.
If we continue to do that as the market comes back over time, we'll be even go back to the level of growth that we've seen in the past.
Thanks, Mike and Trevor. Can I just ask one follow-up, please? Just on the digital game pipeline, I noted your earlier comments. Besides Merge Gardens, which I believe is a relaunch, are there any other titles you'd call out that we should be really watching over the next 6 months- 12 months? Lastly, just Mech Arena, I think it's a couple years old also now, do you think the bookings have pretty much leveled out? Are you expecting sort of another leg up from here? Thank you very much.
Yeah. Thanks, Adrian. As you know, the pipeline release is a fluid pipeline release, so we go through soft launches to worldwide launch, and it's based off a very disciplined approach to the return. Scaling DAUs, daily retention, et cetera. We're not going through which games are in the market. We have got Mech Arena out there and Mike can perhaps talk to where Merge Gardens, Mech Arena are from that perspective.
Yeah. I think, you know, Merge Gardens is a really instructive example of what we think the future of new game launches are gonna look like. You know, it's been a more slow and steady growth rate because we've been able to drive new marketing improvements and brand characteristics in the game itself. Since launching the game back in October, on a weekly revenue basis, we've seen a 360% increase as of today. We think that's gonna continue to scale, but in a much slower kind of growth rate than what maybe in the past was seen, where you were trying to drive a big number right out of the gate. It's just not that kind of market today and may never be because of the, you know, the competitive landscape.
Now, regards to Mech Arena, I think as we look at the Ukraine crisis, in many ways, Mech Arena's probably been more impacted than our other games. You know, we put a lot of focus with our limited resources and the challenges we had there towards Raid. However, over the last three months, because of some of the stabilization efforts we've been doing, we've been able to regroup that team. We've made some improvements on product. We've also added advertising to the game, which we think will be a critical element. I do think the jury's out.
I don't have a clear answer to tell you whether that game can scale, but I'd be careful to look at it like a two-year game just because, again, you know, it did have a setback during the Ukraine crisis that now we think we can put the right effort to it, especially with our new CEO, Shiraga Moore, and to be able to see then whether we can succeed. I'll have more information on that probably six months from now, or you'll be able to see it on a monthly basis as you look at the data.
Thanks very much. That's very helpful. Cheers.
Thank you. Your next question comes from Matt Ryan from Barrenjoey. Please go ahead.
Thank you. I just had two questions on margins. The first question just relates to the land-based margins, which we can see sort of ticked up on a sequential basis. I think in your prepared remarks, you've talked about the supply chain issues being something like continuing but easing. Just hoping if you give some color on when you expect for those to pass, and I guess how material they were in the half just gone.
Yeah. Thanks, Matt. I'll pass to Sally to give you some context on where we are on margins and our perspective.
I think, Matt Ryan, as we've said, the input costs have begun to moderate versus the second half of last year, specifically around chips, sea freight, and we've also seen that air freight is coming down. We do expect further moderation in the second half. We're obviously happy with the improvements that we've seen, but we'll obviously continue to be a key area of focus for us. We will still in the second half be cycling over some higher inventory costs as we build our inventory of last year.
Thank you. The other question was just on the digital margins, actually. Were there any one-offs to call out, sorry, in the cost line? That'd be first part of the question. The second part of it would just be around that UA spend. I'm just trying to work out, I guess what you're paying for at the moment. You know, how effective was it? I know that CPIs have gone up a lot, just sort of trying to work out how you landed at the number that you sort of got to.
Yeah, thanks. Thanks, Matt. I'll ask Sally to give you an update on that as well, particularly around costs and margins and UA.
On the margin, we obviously saw a bigger decline in the half. I wouldn't necessarily label them as a one-off cost, but there's a couple of elements that are probably more one-off in nature. We've obviously been hit with the overall bookings decline. Our exit from the Russian market was actually exiting the market that was at a higher margin. We've also seen a reduction in bookings in some of our higher margin legacy products across both the Big Fish and Plarium portfolios. Obviously, some ongoing costs in association with the conflict in the Ukraine. I think it's fair to say this was partially offset between the dynamic UA allocation and obviously an increased contribution from Plarium Play.
The biggest one to call out is the high margin on the Russian market as we have cycled over that now, and so you won't see that coming back in the second half. I'll ask Mike to comment a little bit on the UA and our approach to the UA spend.
Thanks, Sally. As we said before, we have a very analytical and deliberate strategy around UA, where we don't chase revenue that doesn't have a good long-term return for us. We stayed with that strategy over the first half. Clearly, typically within, you know, the business, we will look to spend a bit more into December, January, to then drive more profits in the later part of the half. But again, we've been very disciplined. We've been disciplined in regards to even our new game, like Merge Gardens in regards to that. Going into the second half, I anticipate that same approach and strategy, as we look at what specific returns we get on a game-by-game basis that we spend.
We also just as was mentioned earlier, we're very interested in some of the innovative marketing attempts that we're looking to do. Things like the new digital series that's launching tomorrow. We think that will have brand benefit as well, and we'll be very much closely watching that, you know, for RAID to see what that does overall with CPIs as we drive more and more organics to organic traffic to a particular game.
Thank you.
Thanks, Matt.
Thank you. Your next question comes from Justin Barratt from CLSA. Please go ahead.
Hi, guys. I might start on the gaming side of the business. You comment that the outright sales were fueled by some larger customer capital commitments during the half. Obviously, we've seen some really strong commentary out of the North American casinos recently. Was just wondering how your conversations are going with some of your major customers about, you know, their continued capital commitments, just given the macroeconomic backdrop and continued increasing pressure on the consumer.
Yeah. I'll make a couple of comments, Justin, and hand to Hector on some of the customer sentiment. I think the first part about it is we're continuing to take share in these markets, and that's coming from product innovation and hardware innovation. We're continuing to be able to take share in those marketplaces as well. It's not just about all boats are rising and we're getting our bit of that. We're actually taking share at the same time. I think the other part to this is that the continued investment behind game content and technology and hardware is what differentiates Aristocrat from other companies.
We put that in as a core foundation, and we talk to about continuing to invest at high levels to drive the ongoing growth of the organization, then create capacity to then do M&A to accelerate our growth. Hector can talk a little bit to you about the customers. Overall sentiment point of view, you know, this is a diversified business with a diversified portfolio, whether it's in the land-based gaming business or whether it's in the mobile business and ultimately in the Anaxi business in time, is that diversification is one of the portfolio strengths of this organization. I'll hand to Hector to give you some color on some of the customer conversations.
Thank you, Trevor. Thank you, Justin, for the question. One of the things that we are very proud about the performance of this half is like Trevor talked about, this record number of game sales we had in North America, 13,000 units. One of the things that really shows the quality of that result is that $21,000 ASP, which is also a new record for the business. In fact, if you look at the performance of the game sales market, it wasn't actually just a handful of customers. It was really across our broad base of customers. If you'd listen to some of the early earnings calls from some of our major customers, it remains incredibly positive, and we're not observing any material changes in consumer spending across the U.S.
In fact, the AGA actually published their first quarter report yesterday, which is timely for this call. For the quarter, it was another record quarter in the first quarter, and it was also the eighth consecutive record-breaking quarter, with 18 gaming markets of the 35 gaming markets setting new records. March itself, just for the month, was the highest grossing month ever from a GGR perspective. When you look at the macroeconomic factors that are happening around the world, and as we've kinda talked about gaming being resilient through potential economic downturns, we're definitely seeing that from talking to our customers and also as we look forward and looking at our sales funnel, it remains robust.
Yeah, fantastic. Thanks very much for that color, Hector. I really appreciate it. Yeah, sorry, guys, but I just wanted to come back to Pixel United margins a little bit as well. I wanted to ask just specifically more about operating costs. It looked like there was a pretty significant step-up in operating costs in this half.
I was just wondering if you could expand on the contributors to those increases in operating costs and whether we should sort of expect this level of operating costs to be maintained into the second half and beyond?
Thanks, Justin. I'll just ask Sally to make a couple of comments.
Yeah.
Lead the comments anyway.
Yeah. I think, look, in answer to your question, the margin is down over the period. There are a few things in there. The operating cost base is something that obviously we can control and is what we drive, and we're very focused on managing that in the environment that we're currently operating on. Again, those higher margin products have been the key drivers of what's driven that margin down in the half.
Okay. Thank you.
Thank you. Your next question comes from David Fabris from Macquarie. Please go ahead.
Hi, Trevor and team. Look, with the capital structure, thanks for providing new guidance on target leverage. You know, as for those debt facilities, will you likely move away from the term loans if there's something cheaper out there? Are there options to make early repayments on those facilities as well?
Yeah. Thanks, David. I appreciate your recognition of the capital structure. I know that it's something that's been debated by shareholders in the market for the last year or so. We tried to put some clear rules and guidelines around it for you. Just reinforcing our number one investment every year is still D&D and UA to drive the organic business, and then to accelerate our growth through M&A by investing in adjacencies and strategic M&A where appropriate, and obviously we've just announced that with Neo this week. Also, returning shareholders or surplus cash back to shareholders through dividends and the buyback program, which is now AUD 1.5 billion in total. What I must just ask Sally to make some more context on the debt structure to your question.
Thanks, Trevor. Look, David, we remain comfortable with our current debt structure. We got attractive funding costs when we refinanced last year. We are unlikely to pay down. We continue to monitor this obviously in line with our capital management approach. At the minute we're comfortable with the way that our loans are positioned and the funding rates that we got on those.
Got it. No worries. I just had a question on NeoGames, actually. Can we clarify whether key management have made commitments to stay on in the business or there's a risk of turnover? Just a second question within Neo there. Is there anything stopping you from providing content on commercial terms before this deal closes?
Hi, David. I'll make some comments on the people and Mitchell's here, you can add in some extra weight. We feel very comfortable that the key talent have commitments to come across with the deal at the right time. Obviously they are an important part of this acquisition, they've been very engaged with this process and we found it to be very engaging for them and also for us, that we're very confident, extremely confident they will come with the transaction. I don't see any challenge from that perspective. On the second question, I'm sorry.
Our content.
Our content. Pre-close our content onto theirs. We're obviously gonna go through a very sensitive process at the moment, David. There's a process that needs to occur where NeoGames shareholders have to vote for the transaction. We obviously feel very confident about that when you have 61% commitment from the shareholders towards that requiring only 66% and 2/3. We will continue to work through that process, you know, appropriately, and at the right times we'll be able to have the right level of dialogue. There is still water to go under the ground. There's water to go under the bridge on this whole transaction, and we need you to respect that process.
Got it. Thank you very much.
Thanks, David.
Thank you. Your next question comes from Andre Fromyhr from UBS. Please go ahead.
Thank you. Good morning. First question is about the financial impacts of the Anaxi segment in the half just gone, but also what that might look like in the second half. I appreciate you've shared some information around what share of D&D spend could be allocated to Anaxi, but are there other costs associated with setting up that business? Are you starting to recognize the income streams from Roxor and the other initiatives that you've got?
Yeah. Thanks, Andre. Just, you know, this is a startup business and we've said that we were gonna build this. We are at the investment stage where we're investing in, you know, critical infrastructure. We're investing in the D&D to make games, support games and technology. I'll just let Sally add a little bit more context to that. I do think we need to think of this as a building strategy, and it is gonna require some investment to actually generate the revenues longer term.
From an investment perspective, we provided the D&D split on Anaxi for the first time in this period, and that's really to provide some guidance around how much we are making from a technology and investment around Anaxi. We have other costs that are embedded still within the gaming business. We probably, from an overall stand-standing perspective and employee base, we've got about 10% of our total overall employee base that is dedicated to Anaxi at this point in time. Some of that in CXS and some of that in RMG.
I think the other element of your question was around revenue, Andre. I think, given that our content has only just started to go out to market, you'll probably see revenue start to come through or expect to see revenue come through in Anaxi, through the RMG segment in the second half, and obviously the revenues that Roxor brings with it, but we only had a one month's worth of that in the numbers, following the acquisition that will close at the end of January.
Thanks. Just got one follow-up question around the capital position. I understand that in the presentation material you shared earlier in the week, you provided the pro forma gearing assuming completion of the NeoGames transaction, but that gearing estimate didn't include the impacts of, you know, completing the buyback program. Is that because the buyback is not intended to be a capital structure move, but rather just returning free cash flow? Like, is this a duration of time difference that it should be funded through free cash flow?
Yes.
Yeah, yeah. That's the correct way of looking at it. The buybacks will continue to be opportunistic as part of our capital management allocation. It is about returning free cash flow to shareholders, pending investment opportunities that we have across the business.
noting that.
Okay
... that transaction won't close until 12 months' time. The free cash flow generation in the interim as well.
Great. Thank you.
Thank you. Your next question comes from Paul Mason from E&P. Please go ahead.
I guess two from me. The first one, it looks like you guys are sort of upping the ante on your R&D for Raid. You know, you've got the new TV or YouTube series. You've launched live PVP, also sort of started inserting a whole bunch of more character lore in the last few weeks. I was just wondering if you could make some comments like, are you trying to reposition that for user growth, or should we still think about that as sort of like a more stabilized asset that's being run more for profit now?
The second question was just if you could provide some color on sort of the initial interest around the NFL game and sort of any color on how some of your customers might be thinking about deploying that on the floor, that'd be great.
Thanks, Paul. Appreciate the questions. you know, Raid is coming up to its fourth anniversary. You've seen a lot of activity in the month of March, sorry, March into April of the fourth anniversary of Raid, which has been a successful brand for our company over the last period of time. I might just hand to Mike around where it sits in the profile and also how we think about it as a long-term product. Mike?
Thanks, Trevor. Yeah, you know, Raid continues to be a strong profitable asset for us, and is in profit mode. We believe that investments both in Live Ops and features as well as the series help maintain that franchise over the long term and help sustain the brand and what it represents, bringing back old users potentially to the game, but also maybe even attracting new users that are take a different look at it based on the quality of that content. In many ways, we view the investment in that series as another form of marketing that we're able to do, but potentially a more effective way over the long term of the game itself.
Right. Thanks. Thanks, Mike. Just to the second question there, Paul, was around just the land-based NFL game, and Hector might give you some context on where that's up to.
Yeah. Thank you, Paul, for the question. Just wanna stress that the NFL is just a portion of our portfolio, and one of the things that we strive to do is have a diversified portfolio and not be overly reliant on any one, you know, title or segment. However, having said that, the NFL is the number one most anticipated game from our customers. That was very evident at G2E this year in Las Vegas. It's very evident in all the conversations we have with our customers and just the excitement that is building around the NFL. Just to give a little bit of context, in the post-COVID world, we have seen the demographic of casino players kinda go down by 5 to 6 years.
We've seen a slightly younger demographic, casino partners, and we believe that there is an opportunity to kinda maintain that player base through unique product offerings and, you know, nothing greater than an NFL product where already has an incredibly strong fan base in the U.S. and growing outside of the U.S. and gives operators and us really the opportunity to capture that younger player, with an innovative, immersive product that can be customized for your favorite team.
Thanks, Hector. Thanks, Paul.
Thank you. Your next question comes from Simon Thackray from Jefferies. Please go ahead.
Yeah. Thanks very much. Hi, Trevor, Sally, and team. I just wanna circle back just to some of your comments for clarification, just to make sure I don't draw the wrong conclusion, I get the right conclusion for Big Fish. You've mentioned legacy Big Fish products at high margin rolling off, the absence of high margin Russian games, and at least for now, you've got lower UA spend as a % of revenue, which was also lower in the period.
Are we meant to conclude that in a more mature market for digital with the layers of consumer privacy protection, et cetera, that are there and the competitive intensity, Mike, that you called out, is that suggesting that future games, at, you know, in the digital, in Pixel are going to be at a structurally lower margin going forward?
Thanks, thanks. Well, thanks, Simon. First of all, just some context here is that, you know, there's different levels of margin and legacy for different types of segments. You know, whether it's casino or RPG strategy versus casual games as well. The economics is not a one-size-fits-all across the portfolio. I think, Mike, you can best make some comments for how we manage the portfolio of legacy and new games over a period of time.
I mean, yeah, and I, number one is I wouldn't take into account the results of the comparison here year-over-year to something on a long-term basis. Again, as Sally mentioned, a big impact for the profit impact is the Russia pull or our strategic decision to pull out of Russia, the impact of the Ukraine crisis. Specifically then those higher margin games, those legacy titles that have been impacted more by the slowdown. We've been able to manage our UA cost effectively to ensure that on a net profit basis after UA, we've been able to do really, you know, fine on a year-over-year basis on some of our larger titles, because we've been able to manage UA appropriately around that.
As you go forward, I would not jump to conclusions about overall margins. Again, I think one of the power of our portfolio is the diversification of that portfolio. You know, clearly some of our titles on the social casino side and on the mid-core side will have the potential for higher margins, as CPIs rise because their economics are much stronger on an LTV basis in terms of revenue that they've achieved from those individual users. Again, I think it's still very early days as people try to assess what the marketing world will look like on IDFA. I do think that again, there is going to continue to be transformation taking place in regards to how people market and how they approach the business that's gonna change the dynamics. Just give you 1 simple example.
You know, today we're seeing enormous amount of social content now taking place, social video content that's actually free and is not paid, that's starting to drive more and more users to games. We see those kind of dynamics only increasing over time, which may improve CPIs in the future as that becomes more of a viable platform. Again, I'd be careful to make too much of a judgment about the future of margins relative to what we may have dealt with specifically in these particular periods.
That's, that's super helpful, Mike. Thank you. Just a quick one to finish off, just the content agreement with FanDuel, with Flutter, that's obviously new. It's just described as a content agreement. I just wanna make sure, is that the same style agreement, Trevor, as the strategic partnerships with BetMGM, Caesars and Penn? Do we think of that at the same way?
Simon, thanks for the question. It is, I mean, each one of these is just it's a similar agreement like you would have with any land-based customer. It's a unique agreement with each customer. The terms and structure of it are confidential, and we're confident that it's the right structure for Flutter and for ourselves.
Yeah, that's terrific. I was just trying to frame your comment about having now 55% coverage. I just wanted to understand, is that across the iGaming market? You know, what does that 55% represent that you referenced there?
Yeah. It references 55% of access to the brands in the iGaming market, and it's a GGR measure. 55% of the GGR we have access to in agreements with customers to distribute our content in the iGaming market in North America, with the view that we were going to get to 70%. We're well on track to being able to be 70% access to the market within 5 years.
Fabulous. Thanks so much.
Thank you. Your next question comes from Rohan Gallagher from Jarden Group. Please go ahead.
Hi, guys. Can you hear me?
Yes, we can. Thanks, Rohan.
Hey, Trevor. Good morning, everybody. Congratulations. Good result. First on gaming, if I may. Sally mentioned, you know, jackpots have obviously paired back this half, gaming op fee per day. Conscious of the disproportionate increase in the typically higher fee per day Class III segment, is there a mix effect in terms of gaming ops, such as the Intralot Neo lotteries that has also paired that down, or is it just purely jackpots, please?
It's, I mean, it's not purely jackpots, Rohan. There are a number of items that go into that from a perspective of the fee per day calculation. jackpots is one of them. I called that out to make a reference. There is a slight impact on the mix in the period as well.
Awesome. Thanks. Just on the margins, in gaming, obviously we're talking about a business that's 50%+ , so it's a phenomenal effort. You touched on, Sally, that there were an AC cost, obviously implicit in the gaming. To better assess the underlying performance of the gaming operation, can you either quantify that or could you know, refer, would margins be flat, up or down without that, please?
We're not sharing that information at this point in time, Rohan.
Okay. Thank you. If a final question, if I may, actually, Mitch, could you or Trevor, could you just run through what you see the operational and financial sort of objectives are for the next 6 months and 18 months for Anaxi, conscious of the lead up to NeoGames, please?
Yeah. I think it's very simple, Rohan. It's continuing to execute on our market entry strategy, which is the build path. We've already made, as I said, 55% of the contracts are now signed with TGR access for North America, and we're continuing to execute and publish games into the market. Obviously, us, you know, helping and not helping, but scaling Roxor, the integration of Roxor, which only closed at the end of January, helping them continue to scale our content into their portfolio, and then obviously them giving them access. You would have seen that they've recently been licensed in Ontario. They're now in Europe, New Jersey, and Ontario as well. Continuing to do the build-out strategy for the business. We feel very confident around the progress that's been made in the last...
Well, since October last year when the strategy started. Very confident around the progress that's been made to get to this point.
Excellent. Thank you.
Thanks, Rohan.
Thank you. Your next question comes from Sriharsh Singh from BofA Securities. Please go ahead.
Hi there. Two questions from my side. First, circling back on the mobile gaming margins, what gives you confidence about lifting them in the second half? You're kind of implying 10%, half-on-half increase in segment profits. Do you think they'll be driven more by cost management or there's a little bit of revenue uplift as well?
Thanks, Srihash. I'll hand it back to Sally. I think you've probably nailed it pretty accurately, to be honest with you. It is a revenue performance. There is ongoing costs, which needs to be continued to be managed through the period.
I think you also have to look at it from a geographic perspective as well within gaming.
Oh, sorry, did I miss digital or gaming?
Gaming.
Gaming. Sorry.
You need to look at it from a geography perspective as well. If you look at the Americas margin, probably trending now more in line with history if you went back to FY 2019, whereas ANZ, as we spoke to at the year-end, was heavily, particularly by the FX, because we buy predominantly in US dollars. We'll continue to focus on that and obviously want to try and drive some improvements there over time.
Understood. second question is, on your expectations with the NFL land-based game. How big do you think this game can be, in 6 months-18 months, and how can it impact fee per day, in your view?
Yeah. Thanks, Sriharsh. I think just simply, we're not making any predictions at this point in time. As Hector said, it's the most anticipated new game. It hasn't been released to the market, we're not providing any guidance or forecasts on it at this point in time. It will be released later this year in line with the football season. Yeah, all I would say is it's the most anticipated new game in the gaming operations market at the moment.
Sure. Thank you.
Thank you. Your next question comes from Darshana Nair from Goldman Sachs. Please go ahead.
Hi, team. Just a quick question on ANZ. Are you able to give us any color on how the market's done since the NSW elections and also anything regarding the initial thoughts around the cashless trial, please?
Yeah. Thanks, Darshana. I think maybe just a couple of comments, Hector, you might just put some context around the market. You know, there was some tempering of the market early in the period, since then we've seen some gradual in change in sentiment from our customers. I think we'd hand it to Hector, just give some context on that and also the cashless trial.
Thank you for the question. Obviously the New South Wales election did put a bit of a pause in the business relative to just risk. But since the resolution of that, we've started to see strong momentum. The other piece we're really focused in the ANZ market is this concept of revenue share, where we started to introduce a recurring revenue hybrid model. We were able to launch two really key titles, so Dollar Storm 5 and 6, and Cash Express Luxury Line. Both of those games are the number one and number two performing games.
Again, on a hybrid recurring revenue model, our customers have started to accept that model because they start to understand the return on invested capital and the ability for them to kind of scale their business as a result of that. For the second half, we have a very strong pipeline that we are gonna showcase at AGE as it relates to the Australia business that we're very, very excited about. You know, talking to our customers, they're also very excited about it as well. From a cashless trial perspective, you know, just to remind everyone, we were the first to market with the first trial. We understand that there's gonna be multiple potential solutions.
The government has said they want a minimum of 500 machines under the trial. We expect that there'll be more solutions that are tested. Really for us, it's really to drive that innovation to partner with our customers, the government and the regulators to make sure that we're ultimately part of the overall solution for the market.
Okay. Thank you. As a follow-up on the revenue share model, what exactly do we have in mind in terms of the penetration of that model in Australia? What are your early thoughts on that?
Yeah. Thanks, Darshana. We're not disclosing that information. It's a process that we work with our customers on a solution that works for them and that we'll continue to work through our portfolio with them, but we're not disclosing any numbers or targets on that.
Okay. Thank you.
Sorry, a last one from me. You've previously spoken about Paradise Fortune and Nova Legends as two key, you know, games in the pipeline. Can you talk about progress on those, please?
Yeah, sure. We don't really talk to games specifically that are still being worked on. Mike, just give us some context.
Yeah
to our pipeline, how we're doing.
Yeah, we really don't get into specific game by game. You know, given again, we go through a pretty stringent process to make sure that it works, like, long-term from an economic standpoint, and it will build the right, long-term value for the company. We still have active, you know, 15 games in the pipeline, of which we're very encouraged by some that we're seeing in terms of with their KPIs, some more than others. Again, I think that's the process that we take.
We believe that organic is a really important part of our development of our business, as well as continuing to look for specific M&A opportunities, like we did with the Futureplay acquisition that brought us the Merge Gardens game. I think it's the combination of both of those, as we go forward to continue to fill our pipeline.
Thank you. Very helpful.
Thank you. That is all the time we have for questions today. For any further questions, please contact investor relations. I'll now hand back to Mr. Croker for closing remarks.
Thank you, operator. Aristocrat continues to execute well against the strategy of offering a diversified portfolio that leverages our leading game contents and capabilities across the organization. We see significant growth opportunities ahead of us, and we remain focused on capturing those. If you have any further questions, as the operator said, please reach out to our investor relation team. With that, I'll call a formal end to the proceedings. On behalf of the broader Aristocrat team, thank you for your ongoing interest in the company. We appreciate your time today. Have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.