Today Aristocrat Leisure Limited in its review of operations for the half-year ended 30 June 2010 reported a profit after tax and non-controlling interest of A$49.3 million, compared to a loss of A$33.4 million reported in the prior corresponding period. The Group delivered a normalised profit after tax and non-controlling interest of A$36.6 million, representing a 16.8% decline compared with the prior corresponding period’s result of A$44.0 million. In constant currency terms, the half-year result was marginally ahead of the prior year.

In North America local currency performance was ahead of the prior corresponding period despite continued challenging market conditions, unchanged replacement cycle and fewer expansions. Market share increased, average selling price improved and overall contribution from gaming operations increased driving improved margins.

Performance in Australia was significantly down on the prior corresponding period mainly driven by poor Gen7 game performance in New South Wales and a lack of product into Queensland. Japan performance was impacted by the lack of a key licensed game this period and a shift in the market towards big titles. In the rest of the world weak economic conditions across most of the portfolio and limited activity from the New Zealand market was mitigated by strong performance in Asia-Pacific and Europe. Importantly the Group held share in the segment despite continuing intense competition.

Economic conditions in North America, poor game performance in Australia, the lack of a key licensed game and more aggressive competition in Japan resulted in lower volumes. Unfavourable foreign exchange translation impacts also influenced reported North America and Japan revenue. These negatives were partially offset by strong performance in Asia-Pacific driven by sales to the two new Singapore casinos, Resorts World Sentosa and Marina Bay Sands, where the Group achieved the highest individual supplier floor shares.

Cost control remains a key focus of the Group’s turnaround strategy. As a result, SMG&A costs across the Group (excluding legal costs) were down 6.0% on a constant currency basis (down 10.3% including savings in legal fees). These savings were driven primarily by lower personnel costs due to rightsizing undertaken in 2009. Total unallocated expenses decreased by $4.3 million (6.3%) principally reflecting lower reported design and development costs and lower corporate costs. Corporate costs reduced 20.0%, excluding legal costs savings of 5.1% were primarily driven by lower personnel costs and other areas of discretionary spend.

The Group’s reported result after tax for the period included an abnormal net profit after tax of $12.7 million arising from the disposal of its investment in Elektronček. The divestment of Elektronček is aligned with the Group’s strategy to exit non-core businesses and to focus resources on its core business of video and stepper reel games and systems.

A year ago, the Group announced its transformation program aimed at delivering sustainable value growth over the next 3-5 years. The program focuses the business on delivering the best games and systems to grow its major markets of North America, Australia and Japan and is is based on four major strategic themes:

• Player-led, technology-driven: Obtain privileged insights to generate competitive advantage.
• Best games and systems: Apply insights to build the best games and systems.
• Right markets and segments: Focus on the most profitable large markets and segments.
• World-class organisation: Build a lean, effective organisation to deliver the best products.

During the first half of 2010, the Group invested in a number of specific initiatives towards delivering on the strategic direction.

Chief Executive Officer and Managing Director of Aristocrat, Mr Jamie Odell, said “As we anticipated, conditions across most markets during the first half of 2010 have been very difficult and have impacted our operational performance. While we do not expect conditions to improve in the second half of this year, we anticipate performance to be weighted to the second half. We reiterate our commitment to continue to energetically and systematically address the things within our control that will boost our competitiveness and profitability as macroeconomic conditions improve.”

He added, “During the first half of 2010, we have bedded down a host of fundamental improvements to systems, structures, capability and culture that will generate top line momentum in each of our key markets within our 3-5 year turnaround horizon. We continue to expect that progress against our strategic objectives will be faster in North America than other key markets. One year into our 3-5 year turnaround journey, the Aristocrat team is more singularly focused on the job ahead than ever before. We have clear plans, the capability to deliver and a determination to make good on our commitments.” (E-08.24.10)

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