Deferred tax asset pushes Aristocrat's profit to A$1.6bn in H1

21 May 2020

Australian gaming machine supplier Aristocrat Leisure has said a deferred tax asset of approximately A$1.0bn (£537.8m/€598.2m/US$657.7m) meant it was able to post A$1.6bn in comprehensive profit for the first half of its financial year.

Revenue in the six months to March 31 amounted to $2.25bn, up by 7.0% from $2.11bn in the corresponding period in the previous year, primarily due to a strong showing by its digital business and the continued underlying performance of gaming operations.

Digital revenue in the first half increased 27.3% year-on-year to $1.04bn, which Aristocrat said was driven by growth within RAID: Shadow Legends, continued scaling of Lightning Link and a strong performance of Cashman Casino. The digital division includes the free-to-play games studios Plarium, Product Madness and Big Fish Games.

In contrast, revenue across all land-based businesses was impacted by the enforced closure of retail locations in many markets due to the outbreak of novel coronavirus (Covid-19) towards the end of the first-half period.

Land-based revenue for Australia and New Zealand slipped 10.8% from $230.6m, while revenue from the Americas also fell 4.8% to $911.0m, with both markets being hit by the pandemic. Revenue from its International Class III arm was also down 6.4% to $90.6m.

Digital remained the main source of income for Aristocrat in the first half. The division accounted for 46.4% of total revenue, compared to 27.3% from gaming operations and 26.3% from Class III outright sales and other activities.

Looking at costs for the period and spending was up across the board. Design and development costs increased 9.1% to $265.9m, while sales and marketing spending jumped 38.5% to $145.4m.

Aristocrat also noted a 10.5% year-on-year rise in general and administration costs to $316.1m for the first half while finance costs also climbed from $66.4m to $72.2m.

Higher spending pushed profit before tax down 20.4% from $4772.2 in the first half of the previous financial year to $380.0m in the current year. However, this was before accounting for the deferred tax asset, which, according to Aristocrat, was the result of changes to its group structure.

When including the deferred tax asset, net profit for the half-year period amounted to $1.31bn, up significantly from the $346.0m profit recorded in H1 2019.

Aristocrat took into account a $358.5m foreign exchange gain, but also net investment hedge costs totalling $28.7m as well as changes in the fair value of the business' interest rate hedge amounting to $32.0m. This left the business with an additional profit of $297.8m.

When added to the net profit for the period, resulted in a total comprehensive profit of $1.60bn for the half year.

“Aristocrat delivered a result for the half year to 31 March that demonstrates our core strengths and the relevance of our product-led strategy, despite the unprecedented challenges generated by the Covid-19 pandemic,” chief executive and managing director Trevor Croker said.

“Our progress in driving share through outstanding product and diversifying revenue streams – including across attractive digital genres and titles – are also evident in this result.

“Particularly in this uncertain period, we will continue to focus on what we can control and do all we can to protect the health and wellbeing of employees, customers and suppliers.”

Last month, Aristocrat announced it was to furlough 1,000 employees and permanently lay off another 200 to mitigate the impact of Covid-19. At the time, Croker said this would help to “maximise opportunities for Aristocrat’s dedicated and talented people over the longer term”.

Croker now added: “Our strong balance sheet, ample liquidity and excellent financial fundamentals position us to emerge from this period strongly, while allowing us full optionality to continue to invest for long- term growth.”

“I want to acknowledge and thank our extraordinary team of employees around the world, whose resilience, pragmatism and care for each other throughout this period has been nothing short of inspiring," he said. “The energy and culture of Aristocrat people has been particularly striking during these challenging times and places the business in great stead for the future.”