Aristocrat forecasts first-half net loss

Tuesday, April 15, 2003 | 11:30 a.m.

BLOOMBERG NEWS

SYDNEY, Australia -- Aristocrat Leisure Ltd., the world's second-largest maker of slot machines, said it will have a first-half net loss because of severance payments to its former top two executives.

Aristocrat today said Chairman John Ducker will soon join Des Randall, former chief executive, and Lionel Jeyaraj, its former finance chief, as the company sweeps clean its executive and board ranks in a bid to restore investor confidence.

Shares in Aristocrat have dropped two-thirds since the company warned in February that it would miss profit forecasts because of lower than expected sales in the U.S. and a failed South American contract. The downgrade came a month after Randall moved to the U.S. and has sparked an inquiry by Australia's securities regulator.

"The key issue will be the caliber of people the company brings in," said George Clapham, who oversee the equivalent of A$121 million at ABN Amro Asset Management Ltd. and holds Aristocrat stock. "Hopefully, they have some creditable substitutes, which will probably be a catalyst for the stock."

Shares in Aristocrat fell 7 cents, or 4.2 percent, to A$1.60 at the market close in Sydney.

Randall and Jeyaraj were fired this month, weeks after the company dismissed the three senior executives of its U.S. unit. Randall had moved to Las Vegas in January to manage the company's U.S. business, the fastest growing market for Aristocrat.

"A breakeven result is anticipated for the group for the first half of 2003," Ducker told shareholders at today's annual meeting. "This does not include any allowance for payouts to" Randall or Jeyaraj, he said.

Sealcorp Holdings Ltd. Chairman John Pascoe will be the company's new chairman, Ducker said. Pascoe is on the board of Aristocrat.

"These days shareholders expect, and indeed demand, high standards from the chairman of the board," Ducker said. "In the current circumstances, someone needs to take responsibility and I intend to do that."

Peter Draney didn't seek re-election as a director at today's annual meeting, Ducker also said.

The recent turnover in senior managers was rare in Australian business, Clapham said.

"When that happens, other players could capitalize on the management uncertainty or people work harder," ABN's Clapham said. "It can be a situation that can force people to focus more clearly on the profitability of the business."

The first-half loss wasn't a surprise after the company's statements earlier this month about the charges of more than A$16 million to reduce the value of contracts with four customers in South America and to revamp its U.S. business, Clapham said.

"The buck stopped at Randall," Clapham said. "He couldn't hide in a corner and say he didn't know what was going on."

Under Randall, the company had targeted a one-fifth share of the slot market in the U.S., its largest and fastest growing market outside Australia. Sales in 2002 almost doubled to A$293.5 million from A$162.4 million a year earlier. Investors, though, say Aristocrat had indicated even faster sales growth.

Ducker said the company intends to maintain its annual dividend of 12 cents, depending on Aristocrat meeting its full- year profit and cash flow targets. He wasn't specific.

International Game Technology of Reno is the world's biggest slot company and Las Vegas-based Alliance Gaming Corp. and WMS Industries Inc. of Chicago are the other major competitors. International Game, whose market value is 15-times larger than Aristocrat, has a two-thirds share of the U.S. market.

Aristocrat is forecast to earn A$73.6 million this year, the average estimate of 11 analysts surveyed by Thomson Financial. Six analysts have cut their estimates in the past four weeks. The company had net income of A$80.2 million in 2002.

Ducker has served as chairman of Aristocrat since September 2000 and as a director since July 1999. Draney became an Aristocrat director in October 1999.