Full Year 2026 Lottery Corp Ltd Earnings Call
Speaker #1: Good morning, and thank you for joining today's call on the Lottery Corporation's 2026 financial results. I'm Wayne Pickup, the company's MD and CEO, and I'm joined by our CFO, Adam Newman.
Speaker #1: We'll walk through the investor presentation, lodged with the ASX this morning, then open the line for questions. Since I joined the Lottery Corporation 9 months ago now, you may have heard me say that it operates from a position of strength, with the privileged market position and strong fundamentals.
Speaker #1: But while that's true, we need to position the business for the next chapter of growth, to evolve from being a lottery operator to a digitally led entertainment platform.
Speaker #1: To achieve that, we've refreshed the strategy, and implemented a new operating model. New teams are in place, and we're moving at pace to execute.
Speaker #1: We're preserving what's been successful over many, many years, but modernizing it for how Australians want to play and engage today, as customers move online and demand more.
Speaker #1: That creates a clear opportunity underpinned by a simple vision: to be the place where Australia comes to play. Looking back on the first year, three things stand out.
Speaker #1: Firstly, the core is strong. That's the benefit of strong infrastructure like foundations, through our long licenses, operational scale, and well-known brands. Secondly, FY26 was a really soft year for big jackpots.
Speaker #1: A 1.45-year outcome. A good one for our customers, as more Australians won million-dollar prizes. But it was the first time in 5 years that Powerball didn't jackpot to $100 million.
Speaker #1: Oz Lotto, our other jackpot game, didn't get to $50 million for the first time in 9 years. But as you know, the math tells you jackpot runs even out over time.
Speaker #1: The momentum in pricing, base game participation, and digital share matters more to the long-term trajectory than what happens in any single period. So when we evaluate our business, we see through the variations and think that's the right way to look at it.
Speaker #1: Thirdly, we're executing the new strategy well. Structural changes to our cost base are giving us room to invest in areas where we can get better returns, like digital AI, product, and the customer experience in retail.
Speaker #1: Slide 4 outlines the investment case. Let's be clear: this is a great business that has trusted partnerships with governments to sell products that Australians love.
Speaker #1: Our licensed-backed market positions would be the envy of lottery operators around the world. Our scale is significant. That enables investment and provides the liquidity to fund the prizes that customers want.
Speaker #1: It's delivered steady, turnover growth, and reliable returns over many years. But more growth sits inside our existing customer base, in addition to new customers we attract.
Speaker #1: We'll pull the structural levers to accelerate that growth over the medium to long term, beyond the 4% historical turnover growth rate. Slide 5 shows how we will turn strategy into shareholder value.
Speaker #1: What's common to these initiatives is our intention to modernize the business and be more focused on entertainment, not just jackpots. We want people to come back more often, be engaged more often, and not just participate when there's large jackpots.
Speaker #1: So we need to fill the entertainment portfolio with more reasons to come back and engage, and really build on these in-between moments. This will grow our base of known customers, playing more often.
Speaker #1: What we're targeting is to combine accelerated revenue growth, expanded margins, and strong cash generation to deliver compounding earnings. We have the ingredients in this business to deliver it.
Speaker #1: Now it's about execution. Turning to the year in detail on slide 7 and 8. If you wanted just one example of how resilient and reliable this business is, it's the fact we've held the dividend at 16.5%.
Speaker #1: That also reflects our confidence in the business's health and growth outlook. The Victorian license extension to 2068 supports that growth outlook in three ways.
Speaker #1: It secures our position as the national lottery operator. It's materially reduced the business's risk profile, our next major renewal as New South Wales in 2050.
Speaker #1: It keeps us part of the Victorian community as we have been for decades, and supports a vibrant news agent and lottery agent network. The Victorian license was always a bit of an outlier.
Speaker #1: Historically, granted on 10-year terms. But the extension brings it broadly in line with other licenses. New South Wales and South Australia have 40-year terms, and Queensland runs for 65 years.
Speaker #1: We had a very good year in terms of execution. Slide 8 outlines several initiatives. The biggest pieces were the strategy refresh and new operating model.
Speaker #1: At an operational level, both lotteries and keynote delivered initiatives to strengthen the customer proposition. Now I'll hand over to Adam for the group results in more detail.
Speaker #2: Good morning. Thanks, Wayne. Good morning, everyone. And thank you for joining us. FY26 jackpot offers ran 21% down versus the PCP. And despite that, the group delivered a resilient result, confirming the strength of our overall business model.
Speaker #2: Group revenue reached $3.6 billion, a diversified portfolio cushioned short-term jackpot swings. OPEX fell, and EBITDA before significant items were $736 million. Down just 1.8%.
Speaker #2: Net interest expense rose 4%, or $5 million, and this was driven by a higher debt levels. We remain materially insulated from rate movements, given around 75% of our debt is fixed or hedged against foreign exchange movements.
Speaker #2: And we earned significant interest income on our cash balances. Following the Victorian license renewal, interest expense will rise materially in FY27. Net profit after tax for pre-significant items declined 6%.
Speaker #2: And as Wayne mentioned, directors held the full-year dividend at 16.5 cents per share. Significant items, $58 million, after tax, are set out in Appendix 1.
Speaker #2: And these mainly comprised the ACT license impairment, plus reorganization costs. Moving to slide number 10. And our EBITDA result reflects the underlying strength of our overall portfolio.
Speaker #2: Jackpot turnover adversely impacted EBITDA by $88 million. Versus the PCP. Factors we control offset most of that impact, limiting the year-on-year EBITDA decline to $13 million.
Speaker #2: Strong pricing changes to our two biggest gains, including excellent price retention from the late FY25, settled our lottery change in 8 months of the Powerball price increase.
Speaker #2: Our base gains were resilient, with continued momentum in instant scratches and lucky lotteries. Keynote delivered another record year, with resale retail visitation and in-venue improvements sustaining growth.
Speaker #2: Lower OPEX, reflecting ongoing discipline and overall focus. So in summary, these elements enabled the business to manage the jackpot volatility, with diversification across our game portfolio, channels, and customer segments, providing earnings stability.
Speaker #2: Moving on to slide number 11. And there are a few key points on this slide. OPEX came in at $296 million. Below last year.
Speaker #2: That reflects discipline cost management, including the benefit of optimization activities, which remove structural costs from the business. This was accompanied by actions taken in a low jackpot environment, with advertising and promotion, and incentives approximately $10 million.
Speaker #2: Lower. We are expecting OPEX in FY27 to be between $305 and $315 million, subject to jackpot outcomes. FY27 will benefit from labour savings, tied to the recent operating model changes.
Speaker #2: We'll reinvest some of these savings to drive long-term top-line growth. Secondly, the dividend. As Wayne said, we manage the business for the long term, and look through jackpot variability.
Speaker #2: Holding the full-year dividend reflects the board's confidence in the business. From FY27, we'll move to a payout ratio that's based upon net profit after tax, pre-significant items, and adding back license amortization after tax.
Speaker #2: This is a more cash-based measure that fully reflects our cash-generative nature, and supports the consistent reliable dividends, that are a critical element of our capital management framework.
Speaker #2: Leverage and interest. Since the merger, we've held the leverage near the bottom of our 3 to 4 times target range, thereby preserving capacity for the Victorian license extension.
Speaker #2: Now the Victorian license has been renewed, leverage is likely to increase above the long-term target range. Reported leverage was $3.1 times, at the 30th of June, 2026.
Speaker #2: Adding in the cost of the Victorian license and normalizing for jackpots, adjusted leverage was $4.2 times. However, we expect to delever over time and return to the target range, supported by both earnings growth and free cash generation.
Speaker #2: The new debt will also materially increase interest expense in FY27. Our average interest rate is currently 5.8%, and new debt is expected to be at higher rates, given we're base rates are now, and likely margins for tenors of anywhere up to 10 years.
Speaker #2: Finally, standard and pause reaffirmed our BBB plus credit rating, after the license extension. Reflecting the structural de-risking that it provides. So to summarize, our balance sheet and strong credit rating, there's a fully debt-fund the Victorian license.
Speaker #2: And in a year of unfavorable jackpots, we held the dividend and showed the cost and capital discipline it would expect for us, from us, as we focus on delivering long-term value for our shareholders.
Speaker #2: Thank you, and back to Wayne.
Speaker #1: Oh, thanks, Adam. Now let's turn to the segment starting with lotteries on slide 13. As the chart shows, the lean jackpot run for Powerball and Oslotto was estimated to have had an $80 million impact on VC versus model expectations.
Speaker #1: Despite that, what I think is important to take away from the slide is that where we control the levers, we performed well. Our pricing strategy and reduced OPEX is clear evidence of that.
Speaker #1: Slide 14. As you'd expect, fewer larger jackpots reduced overall customer numbers and turnover. I want to touch on the key distinction between retained and new or reactivated customers here.
Speaker #1: There are two cohorts that behave differently. Retained customers are the most valuable group. They typically spend around 5 times more than new or reactivated customers.
Speaker #1: This cohort remains quite resilient, and has grown over time, compounding at about 3% a year since FY22, and moving within a very narrow band throughout.
Speaker #1: This points to a structurally healthy core, even through softer jackpot periods. New and reactivated customers, on the other hand, swing more with the jackpot cycle.
Speaker #1: Customer is a hero metric. How many we have, how engaged they are, and what they're worth to us. And we've set ourselves a very simple target: more customers playing our games, more often.
Speaker #1: More than 4 million Australians play our games each year, who aren't registered today, so we're very focused on this opportunity. Some of the recent initiatives the teams implemented have cut friction and make it easier for customers to sign up for us to reach them.
Speaker #1: In terms of channel, we continue to benefit from the shift to digital, with digital share growing 90 basis points. That's notable given jackpots, which skew stronger to digital, had lower turnover this year.
Speaker #1: Slide 15. Looking at our base gains, a really pleasing performance up 5.6% on the past year. Saturday Lotto was very strong, as were instant scratch hits, which grew almost 8%.
Speaker #1: That's referenced in Appendix 3, which sets out the turnover performance of each game. We have renewed momentum in instant scratch hits. It's a great category.
Speaker #1: It's retail only, and the team have done an excellent job in extending the product's appeal. And we see even more opportunity for improvement across the ticket range.
Speaker #1: We touch on how we intend to do that on slide 18. Slide 16 now. These charts really speak for themselves when it comes to the softness of the offers and both jackpot games.
Speaker #1: Oslotto was especially soft against a tough FY25 comp. More than half its draws sat at the 3, 4, or 8 million dollar level, where the offer is naturally less attractive, and higher levels.
Speaker #1: We're addressing Oslotto directly, and more on that shortly. Slide 17 is new and shows exactly where the unfavorability occurred. By coverage, we mean how many of the draws possible combinations are covered by tickets sold, and allowing for the fact that some players have the same numbers.
Speaker #1: To illustrate, take the Oslotto draws between 15 and 40 million dollars, where the average coverage was just 27%. This means there should theoretically be a winner only 27% of the time.
Speaker #1: The actual rate was double that, 54%, or 13 of 24 draws had winners. A similar story for Powerball. As a result, we didn't reach the very large offers.
Speaker #1: 100 million dollar plus for Powerball, or 50 million dollar plus for Oslotto, where turnover grows the fastest. As we've said, this is variability, and we expected it to we expect it rather to even out over time.
Speaker #1: In fact, since the business listing, the aggregate variation over those 5 years nets out at 0. In other words, outcomes tend to regress to the mean.
Speaker #1: Over time. Now, if we turn to slide 18. One of the things this business has done really well over time and is a key strategic differentiator for us is optimization through price.
Speaker #1: It's a proven and repeatable playbook, where we change a game's subscription price and lift prizes at the same time. Our recent change is to Saturday Lotto and Powerball are working as planned.
Speaker #1: Coming up, set for life, relaunches next month, subject to regulatory approvals. It's already a strong product, and we're going to make it even stronger.
Speaker #1: We're now going to give winners an extra 200,000 dollars upfront and a further 20,000 dollars in Division 2. It's tested well, and it 10-cent price increase will support that next evolution for that game.
Speaker #1: Oslotto will be next. We're targeting a price and matrix change with launch planned for the second half of calendar 2027, subject to all regulatory approvals.
Speaker #1: Oslotto plays an important part in the portfolio as one of two weekly jackpot games. This duality increases the likely frequency of large jackpots, and our ability to stretch the customer proposition.
Speaker #1: So following the successful Powerball changes, we see a timely and compelling opportunity to optimize OZ. Now, if we turn to keynote on slides 19 and 20.
Speaker #1: The growth story continues against a prior year that had a really strong keynote classic. Jackpot run. Pubs and clubs continue to experience good visitation.
Speaker #1: We've sought to gain share of wallet by making the keynote in-venue experience more visible and more engaging. As for online, as many of you are aware, legislation was introduced in federal parliament by the government to ban online keynote products as part of broader gambling reform.
Speaker #1: Parliament's currently considering the bill. The full year impact of discontinuing online keynote for us would be circa 25 million dollars of EBITDA based on FY26.
Speaker #1: Our response is to double down on keynote in licensed venues. We have longstanding relationships with venues, and we're well and truly embedded in the Eastern Seaboard pub and club ecosystem.
Speaker #1: Now, if we bring it together, let's recap our strategy on slide 22. Here's the logic and what sits behind the three clear pillars. Pillar one is about strengthening what we have.
Speaker #1: That's renewing and growing what we already do well, the core lottery and keynote offer. Any adjacent opportunities would be looked at selectively. Only where our licenses and brands can compete.
Speaker #1: We're not chasing markets where we lack a clear edge or aren't sustainable. Pillar two answers where new growth comes from. That's digital. That's where younger adult Australians where we have the most room to grow, and where margins are attractive.
Speaker #1: We want to create digital experiences that customers want to return to and play, not just transact with. And pillar three is about delivering the first two by modernizing our operations, maintaining our excuse me, maintaining our expense and capital discipline and building trust.
Speaker #1: Four capabilities support these pillars and make the strategy executable. Slide 23 lists this year's priorities. In lotteries, it's investing in product and marketing to drive participation and know more of our customers.
Speaker #1: It's also about continuing to invest in retail and that critical connection between the retailer and customer. In digital, we have a strong pipeline of initiatives backed by a new team.
Speaker #1: One of our biggest opportunities is social play, turning a solo experience into something people want to share. Syndicates digital gifting, etc., there's a lot we can build here.
Speaker #1: There's two features about to go live on the lot app and line with being more about entertainment. The first is the reveal. It turns checking the results on the app into a more dynamic event, rather than a transactional type of notification that says whether you've won a prize or not.
Speaker #1: The second is play pick, which can make numbers selection far more engaging. Rather than tapping numbers on a grid or letting a quick pick decide, customers can pick their numbers through quick interactive games.
Speaker #1: The idea is picking your numbers should feel playful and entertaining, not just functional. And we're investing confidently in keynote rebuilding it around licensed venues to make it more entertaining, and deliver really simple social play.
Speaker #1: One example is our planned BYOD model. A customer-led digital solution that gives customers more choices in how they play keynote within a pub or a club.
Speaker #1: We also expect it to expand our reach into new venues so lots of upside from that initiative alone. As for what we're seeing so far in FY27, jackpots have been off to a slow start, but the underlying health of the business remains strong.
Speaker #1: We haven't seen anything in the past seven weeks that changes our expectations for the business or our approach to managing it. So in conclusion on slide 24, the financial performance in FY26 was resilient.
Speaker #1: Where we controlled the levers, we performed very well. The Victorian license extension in 2068 strengthens our infrastructure-like characteristics further. Our new operating model gives us three verticals with clear ownership and accountability.
Speaker #1: And an in-flight roadmap and clear indicators to track progress. On a final note, I'd like to thank our team for their hard work in contributing to this result.
Speaker #1: And we'll now open up the line for questions.
Speaker #2: 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.
Speaker #2: If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Rohan Sundaram with MSC Financial. Please go ahead.
Speaker #3: Hi, team. Thanks for that. Just the one question. Wayne, how would I take on board your comments that how would you describe the consumer environment at present?
Speaker #3: I appreciate the underlying look quite solid. I ask in with regards to the 4% reduction in retained customers. Just wondering, is there a luck or a jackpot aspect to that, or how much of that would you actually attribute to macro?
Speaker #3: And how hard do you have to work to yeah.
Speaker #1: We haven't. Good question, Rohan. We haven't seen anything in the data and our data anyway that would sort of give us cause for concern.
Speaker #1: Yeah, some of those retained customers, obviously, they're not completely jackpot immune. One of the things that gives us confidence in current trading performance is the smaller games.
Speaker #1: And when we look at instant scratch, it's in particular there's still doing very, very well. But and as you guys probably know, lotteries are traditionally resilient through consumer and consumer downturns, economic downturns.
Speaker #1: But I wouldn't we haven't seen anything in our data, but we're obviously cognizant of it, where I'm out visiting retailers. It's tough out there, in general.
Speaker #1: But nothing of concern in what we're seeing coming through. We're just like a few more jackpots, Rohan. That's all. Yeah.
Speaker #3: Cheers, Wayne. Thanks.
Speaker #2: The next question comes from David Fabris with Macquarie. Please go ahead.
Speaker #4: Oh, hi, Wayne. Hi, Adam. Just wanted to focus on costs, actually. I mean, you've done a great job on costs and appreciate the guidance.
Speaker #4: I'm just curious, does the FY27 guidance have the full run rate of the recent cost initiatives? Will some of that flow into FY28? And then in addition to that, should we expect any net benefits from AI flowing through?
Speaker #4: I guess I'm trying to figure out whether that call it 300 to 315 little range is the kind of zone we should be thinking about beyond '27 with some of those moving paths.
Speaker #1: Yeah. Hi, David. It's Adam here. Thanks for your question. Yeah, so with regards to the op model changes, they've sort of benefited a little bit in this year.
Speaker #1: We'll have benefits flowing into next year and a bit basically flowing back into FY28 as well. They're taken into account with the overall range.
Speaker #1: Effectively, we've talked about it before. We've talked about the investor data. Some of those savings get reinvested back into the business. But it's not just the op model.
Speaker #1: We've obviously had a program of optimization looking at other costs opportunities within the business over a period of time as well. And that's all kind of reflected in that overall range that we've provided.
Speaker #1: There to you. Don't want to get into the looking out beyond FY27 at this point. And you probably just need to take into account that the range will also reflect the fact that not only we remove structural costs out of the business, but we did have some jackpot-related actions that we took for this year under the call out there, between advertising and promotion, and incentives that in a model where you go back to main reversion, they'll come back into the picture as well.
Speaker #4: Yeah, got it. Okay. And whilst I've got you, Adam, just on the VIC license payment, I mean, are you able to give us any indicative range to consider for the debt cost?
Speaker #4: I mean, obviously, you've suggested it's going to be above that average of 5.8% currently, but any range might be helpful because obviously, that's going to have an impact on our net interest costs in our forecasting.
Speaker #1: Yeah. Thanks, Dave. Yeah, another good question. At the moment, it's a bit dependent upon markets and timing of takeout of the existing facilities within that.
Speaker #1: So we're not really giving a range other than saying, given where base rates have moved and for tenors for periods over and above up to that 10 years, it'll be north of the 5.8.
Speaker #1: So I can't be any more specific at this point.
Speaker #4: No, understood. And just my final question, just on keynote, appreciate you've reiterated the 25 mil EBITDA impact from exiting the online business. But obviously, you've got the refresher of the retail products and offering going on, like the new terminals and BYOD.
Speaker #4: In the coming years, do you think that these initiatives can cover that impact, or should we be thinking about keynote being kind of below the adjusted run rate once you take out online keynote?
Speaker #1: Well, I think it's too early to say, David, where we're going through the we're going to be launching or trialing, rather, BYOD in Victoria in November.
Speaker #1: And we'll provide sort of updates as we go. But as I've said in the past, keynote we've now got a focused team on keynote, right?
Speaker #1: And just improving the visibility and the product presence in venue we think will do a lot. We've got great relationships with clubs and pubs.
Speaker #1: Around the country, but we'll provide more data as we can in terms of how those initiatives are rolling out. But I wouldn't want to go beyond that at this stage.
Speaker #4: Yeah, perfect. Appreciate the insights. Thank you very much.
Speaker #2: The next question comes from Justin Barrett with CLSA. Please go ahead.
Speaker #4: Oh, hi, Wayne. Hi, Adam. Wayne, in your FY27 key priorities for lotteries, you talk about the review or extension of draw times for Powerball, Ozlotto, and Solo Lotto.
Speaker #4: I was just wondering if you could expand on that point a little bit for us, please.
Speaker #1: Well, they currently 7:30, and we're looking to push them out by about an hour and a half to 9 o'clock. So okay.
Speaker #4: So you're not yep.
Speaker #1: Yeah. Yeah. Yeah. So there's it's not much more complicated than giving people another 90 minutes to get their ticket. And so we've heard from customers that they didn't get into the draw because they're picking the I know from my picking the kids up from water polo or something or rushing around or trying to get dinner ready.
Speaker #1: And so it's really just listening to customers and giving them another 90 minutes to buy a Powerball, Ozlotto ticket. Yeah. And it seems to be a something that customers want and a bit of a no-brainer.
Speaker #4: Yeah, fantastic. Thanks for that. And then really appreciate slide 17 of your pack today, around these mid-level draws. I guess my question in relation to that is that my understanding is that at those mid-level draws, it does have an impact on your prize reserve fund.
Speaker #4: So I just wanted to ask, I guess, in relation to Powerball and Ozlotto, has that impacted or has this jackpot run impacted your prize reserve fund across FY26 and therefore now again, I appreciate that from the edges, but I guess impacted your ability to accelerate jackpots next year?
Speaker #1: We've been prudent. With the prize reserve fund, we haven't got aggressive with sequencing so the PRF balances are robust. And yeah, and sort of average over a long over the sort of a long period.
Speaker #1: So we've taken a very sort of prudent approach. So we've got no concerns around the prize reserve funds. And in fact, we'll look at over the coming months, we may look at deploying some of those PRF balances maybe not maybe different to how we've done it in the past as well.
Speaker #1: So there's a few levers that we have, but we've just taken a very yeah, the business has handled what has been a statistically awful period, very, very well.
Speaker #1: And we've taken a very measured approach. We're focused on execution and we're really controlled the things that we can control. But direct response to your question is that we've got no issues with the PRFs.
Speaker #1: And that's partly because we haven't been overly aggressive in terms of the way we've looked at sequencing.
Speaker #4: Fantastic. Thanks, guys.
Speaker #2: The next question comes from Adrian Lammy with City. Please go ahead.
Speaker #5: Hi, good morning, Wayne and Adam. I was just hoping you could talk to the progression of like-for-likes for Powerball since the price increase. From what we can tell, the retention was extremely high in the first few months, but then it's faded, say, in the last six months.
Speaker #5: Are you able to sort of talk to that progression and where you might see the exit rate, please?
Speaker #1: Yeah. Well, we've got we look at it over as you've probably heard me say before. We don't sort of want to sort of bookend you can sort of bookend as business in sort of different periods.
Speaker #1: So we look at it first and foremost, we look at it over the sort of the medium to long term. We need quite frankly, we need some runs on Powerball to really see how the changes have played out.
Speaker #1: We are assuming that the statistical guards will shine in our favor at some point and we'll get some 100 million dollar runs over the past few months.
Speaker #1: There have been weeks where we Ozlotto, or even Saturday Lotto at some points have outweighed the Powerball jackpot. So you see that trade down slightly.
Speaker #1: We have a yeah, we have a as you would expect, we have a cohort of customers that just choose the biggest jackpot prize on offer during the week.
Speaker #1: But yeah, over the nine months yeah, the data that we're giving you is over the nine months, roughly nine month period. Any sort of softness that we've seen in the past few months has typically been on the week-by-week basis has typically been because Oz or a Saturday super draw have outweighed Powerball.
Speaker #5: Thanks, Wayne. And can I just ask a quick follow-up on the Ozlotto side? Because it does seem it was maybe down double digit in the second half on the like-for-likes.
Speaker #5: And I do understand it's a tough comp. But obviously, there'd be a lot of registered players that would be playing both Powerball and Ozlotto.
Speaker #5: So I was wondering if you've done any analysis to see whether maybe those players are pulling back a bit on Ozlotto since the Powerball pricing increase?
Speaker #5: Are they kind of managing to a budget given that price increase, please?
Speaker #1: I haven't seen that on the data.
Speaker #5: Okay. No worries. Thank you.
Speaker #2: The next question comes from Andre Vermeer with UBS. Please go ahead.
Speaker #4: Thank you. Good morning. Maybe a question for Wayne. On slide 23, FY27 key priorities, there's a reference to reviewing the retailer commission structure. So I'm curious to understand if there's any particular pain points that you're seeking to address there at the moment and is the scope as broad as just changing percentages or is it something different to that?
Speaker #1: Thanks, Andrea. It's broader than that. We're in dialogue with retailers and their respective associations at the moment on it. It's really just the way and so I don't want to go into too much detail, but just think of it as reflective of strategy.
Speaker #1: So we want to ensure that we're yeah, we're all rowing in the same direction. And we've got for instance, Andrea, we've got a stated objective of getting more registered players.
Speaker #1: We want people to register if they win. We want to be able to find them. We want to be able to pay the prizes.
Speaker #1: We want to be able to notify someone of a that their favorite retailer has just won or sorry, has just sold a hopefully a 100 million dollar Powerball prize.
Speaker #1: So we've a lot of our strategy, as you know, is around having direct relationships with our customers. And in the broadest possible sense, we just want to make sure our commercial arrangements with our retail partners are commensurate with that.
Speaker #4: Okay. And then if I could just stay on that slide, wondering if you could provide a status update on the greenfield app with the launch for first half 28.
Speaker #4: That's conceivably a year away. So I was curious to understand where you're up to and sort of what the risks are around, especially at the time.
Speaker #1: Well, yeah, we're working on it. We're sort of with the digital with the digital program, we're sort of attempting to sort of chew gum and walk at the same time.
Speaker #1: So you're going to see a number of drops under the current infra that we have infrastructure that we have in place. Next month, in fact, you'll see and we showed you some of these at the investor day, the play pick and draw reveal they'll be launched next month.
Speaker #1: Second half of the year, under the current digital app, there'll be social play digital gifting and auto play. What we don't want to do, Andrea, is just go out and build the same thing that we have today.
Speaker #1: So a lot of the work at the moment with the team is around looking at what the app ought to be. A lot of people get in excited because they think they can build an app in two weeks with AI.
Speaker #1: We want to build something that people want to use and come back and engage with. The other thing is when we build it, it needs to be AI ready.
Speaker #1: And have all of those necessary tools sort of embedded in it. So we will on the app, we will do it we will do it well.
Speaker #1: We will do it efficiently. And I think around probably around this time next year, we'll be we'll be close to launching it. And in the meantime, and we're not just not going to we're not stopping doing everything else, right?
Speaker #1: So in the meantime, we've got a I think a very sensible and commercially aggressive list of improvements with the current infrastructure that we have in place today.
Speaker #1: You may have already and I know you're a big lotto player, Andrea, but you may have already seen some improvements in the app UX already.
Speaker #1: And this is the benefit of the op model change. We have a very excited pumped up energetic digital team and we want to create certainly the best app for this product in Australia.
Speaker #4: Okay. Thank you.
Speaker #2: The next question comes from Kai Erman with Jefferies. Please go ahead.
Speaker #4: Morning, Wayne and Adam. Just one from me regarding product. You've obviously flagged the upcoming Ozlotto changes you're working through and done some work on instant scratch it today, which you're seeing success with.
Speaker #4: Do you see any other opportunities in the portfolio to refresh or improve product or potentially any new product ideas that could fit within your existing portfolio going forward?
Speaker #1: I mean, yeah, the short answer is yes. But probably, yeah, we're not in a position to sort of get into them today. The and again, based on the op model, changes we've made, we have a lotteries team now.
Speaker #1: And they are focused in terms of what else? I think, yeah, I would like to be able to present a roadmap that goes beyond the just the next 12 months, so to speak.
Speaker #1: So we've got four there's opportunity to do more with what we've got. And as you've probably heard me speak about before, we're sort of trying to compartmentalize them into three things is how do we improve the experience of the products we have today?
Speaker #1: Right? And that's the examples with the digital experience some of the digital changes. That are going to work great for retail players as well.
Speaker #1: The draw reveal and things like that. Moving into changes to existing products and then EMPD, our focus at this stage is on those sort of first two buckets.
Speaker #1: And EMPD will follow at some point in the future.
Speaker #4: Thanks, Wayne. That makes sense. And maybe just on the digital penetration piece, you obviously saw pretty strong outcome there, this period despite the sort of weak jackpots.
Speaker #4: How much of that do you think is driven by some of your recent initiatives you're doing in digital and then with more initiatives to come?
Speaker #4: Do you have a sort of view on how high that could get to in the next couple of years?
Speaker #1: I think what you've seen through FY26 has largely organic. I think it's just more just a preference. Shift. I think, yeah, at the end of this current financial year, I think you'll get a better sense of changes that we're making and the impact on those.
Speaker #1: And yeah, where it gets to is where it gets to. We don't we're not pushing people one direction or another. A large part of what we do is marketers and the biggest job of a marketer is to listen.
Speaker #1: And to listen to customers and so we'll just try to understand our customers as well as we can and respond. And there is, yeah, naturally a preference a digital preference that goes along with that.
Speaker #4: All right. Thanks, Wayne. I'll let the next question
Speaker #2: comes from Mark Wilson with RBC. Please go ahead.
Speaker #4: Thanks very much, Wayne. Just with online keynote, just wondering what your approach is to the point where you've got to exit that business. And will there be any sort of major restructuring, redundancy costs as a result of exiting that business?
Speaker #1: No. No, no, no. We've factored it in already. So I think the current the current round of restructuring was cognizant of this. We assumed we presumed this change.
Speaker #1: And it's also reflected in our investment in that online channel over recent months as well.
Speaker #4: Great. And so you just run it as per normal up until the end of December?
Speaker #1: Yeah. Let's get through yeah, the parliamentary I mean, I know it's imminent now, but we'll just sort of get through the parliamentary process and then the working assumption is that we shut it off at or before when we're told to.
Speaker #4: Yeah. No, no. Thank you. And then just on the opportunities to reinvest in the business, whether it be OPEX or CAPEX, what are the key items that you are focusing on?
Speaker #1: Well, they center around the customer experience. One thing that I we're doing just an in general terms, very general terms, just improving the customer experience.
Speaker #1: And we take this vision of where Australia comes to play very seriously. We take the mission of giving people more reasons to come back beyond waiting for a jackpot very, very seriously.
Speaker #1: Where we've rolled out digital signage. We're actually trialing a different type of digital signage in stores. In the coming months, and clearly the app and the digital assets that we have are an essential part of that reinvestment, both in terms of online play as well as the app being a really, really strong compendium for in-store play as well.
Speaker #4: That's great. Thanks very much.
Speaker #2: The next question comes from Matt Ryan with Bear and Jerry. Please go ahead.
Speaker #4: Oh, thank you. I saw that base games were up almost 6%, which is a bit more than we normally expect. Just keen on your thoughts on what's driving that.
Speaker #1: I think it's a good question, Matt. I think it's I mean, it reinforces the strength of the franchise. We see so yeah, whilst we haven't had the yeah, the headline jackpot numbers, yes, people are still it gives us confidence, right?
Speaker #1: In the core franchise. And people still want to engage spend 15, 20 bucks a week and play the lottery. There have been some intentional a lot, not intentional work around the instant scratch, it's range.
Speaker #1: I think you've heard me talk about before that I think there's runway there to do more. So yeah, whilst a lot of the airtime is taken up by Oz and Parable and Like for Likes and the there's an awful lot of people in the business that work on these base games.
Speaker #1: Think about them very hard and work with our retailer outlets, work with we've got cross-sell going through the digital channels now on them. So there's lots of small things that we can do to make the boat go faster.
Speaker #1: And I think you see that reflected. And to the point earlier, from the earlier question, this is what also gives us confidence in the underlying strength that the franchise through what is undeniably some volatile consumer sentiment moments.
Speaker #4: Great. And then maybe just a question on the next 12 months. I think you highlighted maybe marketing costs came down a little bit in the past 12 months, presumably on the poorer jackpot.
Speaker #4: So there are any other costs that might come back with a more jackpot normal environment?
Speaker #1: Oh, I think it'd be mainly the advertising and promotions nothing Adam, I don't think there's anything else of materiality.
Speaker #3: Yeah. All I would add to that, Matt, the we did call out there's a benefit from not only AMP from jackpot related, but incentives were impacted as a consequence of the jackpot outcomes as well.
Speaker #3: So both of those items factor into the guidance that we've given for FY27 OPEX.
Speaker #4: And does that do those incentives fall in the advertising and promotions line?
Speaker #3: No.
Speaker #1: Staff used to refer to.
Speaker #4: They're employment costs.
Speaker #1: Yeah. Yeah.
Speaker #3: Yeah.
Speaker #4: Okay. Great. Thank you.
Speaker #2: The next question comes from Charles Strong with Jordan. Please go ahead.
Speaker #4: Why morning, Adam? Just wondering, is there a particular cadence you're working to on game refreshers? Just noting the set for life to come in September and odds lotto in the first half 28.
Speaker #1: There's a so the short answer is no. The longer answer is that we would like it to be not one a year. Okay? So there's I mean, some of the restrictions we have around the regulatory environment, we operate in the legacy tech that we operate one thing that we haven't spoken a lot about in the past is we're in the second year of a CAPEX program.
Speaker #1: I've clearly I've spoken a lot about the digital assets, but we're replacing all our terminals, all of those terminals have software on them. We're upgrading our we've upgraded our data center as a lot of our infrastructure.
Speaker #1: So there's a lot of plumbing in the background that we don't talk a lot about and a lot of people in the business do a heck of a lot of work on.
Speaker #1: So we've got some things that restrict us, but we I wouldn't read too much into sort of once a year. We would like to be making changes more often than that going forward.
Speaker #4: Excellent.
Speaker #2: The next question comes from Sam Bradshaw with Evans and Partners. Please go ahead.
Speaker #4: All right. Good morning, Wayne and Adam. Just wondering if you can give a comment on how you think your position for the ongoing gambling reforms beyond online care, which I suppose you've already touched on.
Speaker #4: And if you have a strategy to capture some of the spend from adjacent lottery categories. That's expected to be shut off. Thanks.
Speaker #1: Yeah. As I said earlier, this is going through a parliamentary process. Our sort of put my views in the public domain. What we've certainly looked for is we favor highly regulated consistent markets.
Speaker #1: Okay? And that's we've been the company and since joining, we've been and since me joining, we've been very consistent about that. It's in the last throws, we think, of the parliamentary process, and I'm not going to sort of comment on it much, but other than that, we're not the second part of your question.
Speaker #1: We're not factoring in anything at this stage in terms of a shift in expenditure other than the we've taken a very conservative approach to it.
Speaker #1: I think, yeah, we've flagged the online keynote which is clear. And we haven't made any other assumptions beyond that.
Speaker #4: And then maybe just a little bit following on. There was a one-off cost for lotteries product development that was flagged due to the future viability.
Speaker #4: Given the emerging reforms, you're able to kind of tell us what those product developments were?
Speaker #1: Oh, as you'd expect from any company, we have had a number of things a number of product ideas that have been worked on. When I started, we looked at we've obviously reset strategy.
Speaker #1: And at the same time, we've looked at where we think the sort of the tides are moving in terms of gambling policy in Australia.
Speaker #1: And we're not going to continue with some of those initiatives. So that's as far as I'm going to go. All right.
Speaker #2: There are no further questions at this time. I'll now hand it back to Wayne Pickup for closing remarks. Please go ahead.
Speaker #1: Well, just look, it's been a it's been a tough year in terms of what we were dealt with, but I think solid results I know the team it's really about what we're focused on is about the future.
Speaker #1: We've got a team that is very engaged. And very focused about execution. And thank you for your time today. And look forward to catching up in the future.
