Aristocrat continues legal pursuit of rival Light & Wonder after posting “high quality” profit result

A better-than-expected profit result sent the gaming company’s shares surging, while it flagged a strategic review which may see it sell non-core assets.

Aristocrat Leisure has claimed documents provided by American rivals Light & Wonder in an ongoing court stoush confirm its rival “has misappropriated Aristocrat trade secrets” concerning one of its most popular games, Dragon Link.

Australia’s biggest poker machine manufacturer, Aristocrat is suing Light & Wonder, alleging it and former Aristocrat employees now working for Light & Wonder copied Dragon Link and materials related to it in creating the popular Dragon Train game Light & Wonder launched last year.

Aristocrat has taken legal action against Light & Wonder in Nevada and the Federal Court in Sydney. Both companies are listed on the ASX.

In court filings lodged this month in Nevada, Aristocrat described documents Light & Wonder recently provided to Aristocrat’s counsel in Australia as “troubling” and “suggest that a former Aristocrat employee has used Aristocrat’s confidential information in her work for [Light & Wonder]”.

Aristocrat commenced legal action in Nevada in late February alleging Light & Wonder had obtained confidential information about the mathematics and functionality of Dragon Link, using symbols, features, rules and pay tables to create Dragon Train with the involvement of former Aristocrat employees Emma Charles and Lloyd Sefton.

Light & Wonder have vigorously defended the claims, describing them as “baseless”.

In recent filings in Nevada, Light & Wonder said it “disputes that Aristocrat’s claims have any merit, that any materials produced in this action demonstrate a misappropriation of trade secrets”.

In orders in the Federal Court in Sydney two weeks ago, Justice John Nicholas granted Aristocrat the right to further discovery of documents related to mathematical rules, formulae or models used by Light & Wonder to create Dragon Train and certain other material.

In submissions to the Federal Court, Light & Wonder “deny copying and positively assert independent creation” of Dragon Train and described the US court action taken by Aristocrat as “speculative and implausible”.

Aristocrat chief executive Trevor Croker would not comment directly on the case, but told The Australian his company “was very disciplined around our IP (intellectual property) and our ideas, and we remain focused on that. We’ve been wide ranging in our activities on protecting our IP and people”.

Mr Croker, now in his seventh year as Aristocrat chief executive, succeeded Jamie Odell — now Light & Wonder’s chairman — in 2017 and delivered an impressive first-half financial result on Thursday.

Aristocrat’s share price surged by as much as 11 per cent during trading after it beat analyst forecasts in posting a half-year net profit after tax and before amortisation of acquired intangibles (NPATA) of $764m, up 16 per cent from the previous corresponding period.

Group revenue increased to $3.3bn, up 6 per cent in reported terms and 4 per cent in constant currency, and Aristocrat said it would pay a dividend of 36c — up from the 30c dividend it paid a year earlier.

The result for the six months to March 31, which is up 13 per cent in constant currency, reflects its diversified gaming assets, effective execution of its growth strategy and overall cost discipline, Aristocrat — founded by 100-year-old billionaire Len Ainsworth in 1953 — told investors.

Aristocrat Leisure begun legal proceedings over the alleged misappropriation of its trade secrets.

Mr Croker said it reflected the group’s “resilience and ability to grow [market] share and drive profitability through different operating environments” and that it was “a very high quality result”.

The market was likely receptive of Aristocrat announcing it would undertake a strategic review of its Big Fish Games and Plarium Global divisions, potentially flagging a sale of the casual gaming assets — excluding their social casino games.

Mr Croker stopped short of saying Aristocrat would definitely sell the divisions, stating a focus on casino games and the recently finalised $1.8bn acquisition of iLottery business NeoGames meant a review of other assets was timely.

“We don’t have a predetermined outcome in mind … but we will try to do it quickly,” he said of the strategic review.

He also said Aristocrat would keep investigating merger and acquisition opportunities across all the land-based and online industries it operates in.

“We are willing to spend and invest in M&A and we have a good track record in taking a disciplined approach,” he said.

While Aristocrat has a dominant poker machine game manufacturing business in Australia and the US, and a growing presence in the burgeoning online social gaming and online real-money gaming sectors, Mr Croker said there was still room for growth.

“Maybe people haven’t understood there’s a lot of growth left in our businesses. We don’t see it that way. We see opportunities to take share and to invest in doing that. The runway to growth is very solid, so I think it is an exciting time for us.”