The share price of Aristocrat Leisure Limited (ASX: ALL) has jumped to a 52-week high of $34.71 in Friday trade. Investors have reacted bullishly to the company's full year result, with shares up 9% over the last 3 trading sessions.
Americas and digital drive growth for Aristocrat
For the year ended 30 September 2019, Aristocrat reported a 22.7% rise in revenue to $4.4 billion. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 20.2% to $1,597 million. Normalised profit after tax and before amortisation of acquired intangibles rose 22.6% to $894.4 million.
Aristocrat's cash flow was strong with operating cash flow rising 16.2% to $1,086 million. Net debt to EBITDA also declined from 1.7 times to 1.4 times. Aristocrat also lifted its dividend with the total dividend for FY19 up 21.7% to 56 cents per share.
On a segment level, the main drivers of the rise in earnings came from Aristocrat's land-based operations in the Americas and its Digital business.
The Americas business saw revenue rise 14.2% to US$1,363 million and segment profit increase 15.5% to US$750.6 million. The result was driven by continued strength in the company's gaming operations and market share gains in outright sales. Aristocrat's move into adjacent markets is gaining traction, with management noting on the conference call that adjacent markets sales represented around 16% of total outright sales in North America.
Aristocrat's Digital business reported FY19 revenue growth of 24.1% to US$1,252 million. The rise occurred due to the scaling of new titles and the full year benefit from the acquired businesses of Plarium and Big Fish. In FY19, Aristocrat had 9 games with bookings in excess of US$50 million.
Segment profit rose 11.9% to US$370.2 million as margins contracted because of a change in mix with a higher proportion from casual games and an increase in user acquisition. User acquisition soared 30.6% to US$328.0 million, driven by the full year impact of acquisitions and investment in new games, most notably from RAID: Shadow Legends.
Forex and taxation tailwind
In FY19, Aristocrat benefitted from favourable currency movements, with foreign exchange contributing $65.7 million to normalised profit. Furthermore, a lower tax rate also boosted normalised profit by $21.4 million.
Aristocrat also announced a change in its Group structure that will result in a reduction in foreign cash tax paid and book tax expense from FY20 onwards. The change will have no impact on the amount of Australian tax paid.
A one-off deferred tax asset of around $1 billion will be booked in the first half of FY20. Moreover, the group's effective tax rate will be around 23.5% to 24.5% over the next 2 to 3 years. This would be materially lower than the effective tax rate of 27.5% in FY19.
Foolish takeaway
This was a strong result for Aristocrat as the company continues to successfully execute its growth strategy. It remains a leader in its space and has outperformed other gaming businesses such as Ainsworth Game Technology Limited (ASX: AGI) and Star Entertainment Group Ltd (ASX: SGR) in 2019.
