Aristocrat not concerned about tariff impact

Aristocrat has grabbed more market share in US casinos and says it isn’t worried about tariffs or talk of a US recession, although its shares dropped 15 per cent on an earnings miss.

Aristocrat Leisure chief executive Trevor Croker at the company’s offices in North Ryde, Sydney. Picture: Britta Campion / The Australian

Aristocrat Leisure boss Trevor Croker says it has spent the last five years diversifying its supply chain away from China to cope with any crippling US tariffs, while new and exciting games for casinos and mobile devices, along with a growing share of casino gaming floors, should protect its profit if the US lurches into a recession.

In fact, the company has shown a pedigree from emerging from external shocks such as Covid-19 stronger than before and able to strip market share from rivals as it leverages its popular games, technology and intellectual property.

Bolstering its financial position in the face of growing geopolitical and economic uncertainty currently is its continued march across North American casino floors with Aristocrat ratcheting up its market share to 42 per cent, up from 40 per cent last year, to have 73,603 units installed by the end of March.

Mr Croker, who took the helm of the $37bn global pokies and gaming giant in 2017 and is based in the gaming mecca of Las Vegas, has also pushed back on competitors gunning for his casino footholds, such as Light & Wonder, who the company is suing over breaching its trade secrets and that on Wednesday he accused had “not played by the rules”.

Founded by now 101-year-old billionaire Len Ainsworth, Aristocrat has launched a series of lawsuits across North America and Europe against competitors large and small to protect its intellectual property around popular pokies games and which saw a $15m uplift in legal costs in the first half.

Aristocrat Leisure has upped its market share across North American casinos to 42 per cent.

This along with pressure on lease payments from casinos for Aristocrat’s machines and higher promotional spend saw the company miss earnings expectations for the first half by as much as 6 per cent to send the stock diving more than 15 per cent.

On Wednesday Aristocrat reported that profit for the half year to March 31 fell 21.6 per cent to $511m while normalised profit - which accounts for last year’s sale of its Plarium Global division for more than $US600m ($A924m) - rose 5.6 per cent to $732.6m. Normalised revenue for the period lifted 8.7 per cent to $3.034bn. The company declared an interim dividend of 44c per share, up from 36c, and is payable on July 1. The 22 per cent hike to the interim dividend feeds into $533m in cash returned to shareholders through dividends and on-market share buybacks for the period.

Investors were concerned however about a 5 per cent drop in fee per day collected by Aristocrat on its pokies machines and weaker growth outside of North America which missed analyst expectations by as much as 20 per cent. Although the company stuck to its earnings guidance, analysts began pencilling in moderating growth for the full year. It has also promised better growth in the second half.

Mr Croker viewed the performance over the first half as a “positive result” illustrating the quality of Aristocrat’s portfolio and ability to grow through different operating environments while also investing for the future.

“We achieved solid revenue and EBITDA growth in the period, once again highlighting market leadership and scale as fundamental strengths of our business, supported by a focus on operational efficiency and extracting operating leverage as we grow.”

Aristocrat Leisure chief executive Trevor Croker has accused rivals of ‘not playing by the rule book’ as the company’s legal bill rose by $15m as it funds lawsuits. Picture: Britta Campion / The Australian

He told The Australian Aristocrat had managed to up its market share across North American casinos to 42 per cent helped by new and innovative products, investment in hardware and its access to increasingly popular licences for its pokies games such as sports code NFL, Crazy Rich Asians and House of the Dragon. Phoenix Link, Dragon Link and Buffalo Ultimate Stampede were strong pokies games that had fed its higher market share in the half, he said.

On top of the more than 73,600 machines it has in the market, from which it earns fees, Aristocrat also had another 280,000 machines it had sold to casino operators which was about 28 per cent of the market.

Mr Croker said Aristocrat had manufacturing hubs in North America, Europe and Australia but had been diversifying its supply chain away from China in the last five years to reduce its reliance on China by 70 per cent to now only representing 14 per cent of its manufacturing and components base.

This was part of Aristocrat’s “mitigation playbook” and would place it in a strong position if high tariffs are permanently slapped on China and other countries in the region by President Donald Trump.

“We don’t see any material impact in our costs in fiscal 2025. Through the Covid period we spent a lot of time diversifying our supply chain, so we now have dual source of componentry and dual source of regions across our supply chain.

“For instance, China is only 14 per cent of our supply chain, which is down 70 per cent pre-Covid. And we also do most of our manufacturing in the US, Australia or Europe. We are very comfortable with the diversification of our portfolio of suppliers.”

Aristocrat Leisure has diversified its supply chain away from China to deal with any issues around tariffs.

Turning to rising concerns the trade war and Trump tariffs regime could knock the US into a recession, Mr Croker said the business had shown resilience through volatile economic periods.

“Over the last two decades gaming has been pretty resilient through economic times or economic shocks, and it’s actually been quite quick to rebound.

“So whilst it has had minimal impact, it has actually rebounded really quickly. So we are obviously watching that, and a lot of our customers have provided quarterly commentary that are not indicating a slowdown from their perspective at the moment, but there is an element of cautiousness.

“From our perspective, the companies that will do well through any shock like that are the ones that have got great product, that are investing behind their business, and have the strong financial balance sheet to be able to go out and continue to invest and partner with their customers.

“Aristocrat saw that when we came out of Covid, and we were able take a lot of market share very quickly by having games partnerships and building willing to get ready and come out of it.”

Originally published as Aristocrat not concerned about tariff impact