Aristocrat Leisure reports revenue, profit declines

By Steve Green

Tuesday, Aug. 25, 2009 | 11:59 a.m.

Slot machine maker Aristocrat Leisure Ltd. on Tuesday reported revenue and profit declines in the North American market during the first half of 2009, citing "difficult economic and gaming market conditions.''

The company, based in Sydney, Australia, also posted a first-half loss due to a write-down in the value of its investments in two electronic gaming experience companies: automated poker table maker PokerTek Inc. of Matthews, N.C.; and Slovenia-based Elektroncek.

Elektroncek does business in the United States with its Las Vegas-based Interblock USA company. Elektroncek makes multiplayer gaming machines such as roulette and blackjack.

Aristocrat said it lost $33.1 million (U.S. $28 million) in the six months through June vs. a profit in the year-ago period of $70.4 million. Sales fell 5.3 percent to $441.7 million.

"We are disappointed with the results amid challenging global conditions. Operators continue to be cautious in terms of capital spending and new venue openings slowed markedly. However, we have maintained our pricing, cash flows and conservative debt levels while controlling costs,'' Chief Executive Officer and Managing Director Jamie Odell said in a statement.

In North America, revenue declined 9.7 percent to U.S. $164.8 million and profit fell 16.2 percent to U.S. $62 million.

"However, the group slightly improved its share of sales and is positioned well for the second half, with scheduled game releases and an increasing participation installed base,'' Aristocrat said in a statement.

The participation slots are games in which profits are shared between Aristocrat and its casino customers.

The decline in revenue for Aristocrat is in line with declines reported by two other slot makers this spring as casinos, hurt by the recession, cut spending.

At Las Vegas-based Bally Technologies Inc., revenue for the quarter ending in June fell from $247.4 million in 2008 to $205.1 million in 2009. Reno-based International Game Technology said revenue for the quarter ending in June fell from $333.6 million to $287.9 million.

The exception was WMS Industries Inc. of Waukegan, Ill., which said quarterly revenue grew 5 percent to $195.8 million.

Aristocrat posted a non-cash write-down of $79.9 million against its investments and associated inventories in multi-terminal gaming businesses PokerTek and Elektroncek.

Aristocrat owns 1.8 million shares of PokerTek, which this month reported second-quarter revenue fell from $3.8 million to $1.5 million, though its loss narrowed from $1.95 million or 18 cents per share to $1.64 million or 15 cents.

Besides PokerPro automated poker tables, PokerTek makes Heads-Up Challenge two-player games. PokerTek this month said its financial results this year have suffered because of a decline in sales to Aristocrat, its shareholder.

After sales of $1.6 million to Aristocrat in the first half of 2008, PokerTek said there were no PokerPro sales to Aristocrat during the first half of 2009.

"During 2008, Aristocrat purchased hardware for deployment in several Eastern European markets which have been impacted by the economic slowdown. As a result, Aristocrat has experienced a decline in new placements and an increase in product returns, significantly increasing their inventory position. As a result, we do not expect significant product demand from Aristocrat in the near term,'' PokerTek disclosed this month.

Aristocrat also announced Wednesday what it called a "transformation program'' to better focus on North America, Australia and Japan.

"Today we are announcing a comprehensive plan to reduce our earnings volatility and deliver sustainable value growth over the next three to five years," Odell said. "We will hone in on the few game-changing opportunities that will make us successful. This means a resolute focus on our major markets of North America, Australia and Japan.

"Doubling our share of the participation gaming market in North America over the next five years is our first priority. We will also grow our U.S. systems and stepper (reel slot) businesses. We will increase our investment in U.S.-specific game development and make better use of leading-edge technologies to add value to our portfolio," Odell said in the statement.

"More of our management team will be based in North America, reflecting our determination to become more genuinely embedded in the region as a local business delivering tailored solutions to North American customers," he added.

Aristocrat said the transformation will include a "thorough cost-alignment program'' to "extract savings through rightsizing, appropriate outsourcing, supply chain optimization and exiting low-margin jurisdictions.''