The first six months of 2006 have seen mixed results for Australia’s Aristocrat Leisure. At home the continuing regulatory restrictions, including caps on gaming machine numbers in every jurisdiction, and the market uncertainty due to prospective smoking bans and licence renewals has seen the machine replacement cycle stay at historic lows. New industry regulations in Japan, whereby Regulation 4 pachislots must be removed by July 2007, has caused machine sales to fall to just 1,787 from 24,000 for the same period last year. As the new Regulation 5 machines will be less profitable, operators are delaying making the changeover as long as possible.

In contrast, sales in North America had a record first half despite delays in the opening of new jurisdictions and an overall slowdown in the market. Revenue also increased substantially in South America. In Europe, apart from Russia, growth was strong with revenue increasing 59%. The Russian market was effectively closed, following legislation that has yet to prescribe the licensing process, and not expected to reopen until the first quarter of 2007 at the earliest.

The Asian-Pacific region performed the best – providing revenue growth of around 100%. In Macau, Aristocrat products account for over 50% of the gaming floor in Sands Macau and more than one-third at the new Grand Waldo Casino. Prospects are good for capturing a significant share of the expanding market in Macau, where 20 new venues are under construction. Product sales have been strong in Malaysia, Cambodia and South Korea.

The was a revenue decline in South Africa, where market conditions are expected to improve, and New Zealand, where the market is expected to remain flat. Total revenue for Aristocrat for the six months ended 30 June 2006 declined by 5.6% to A$496 million (US$ million). Profit after tax was up by 2.9% to A$105 million (US$ million). Investment in research and development rose 48%. The acquisition of Stockholm-based EssNet Interactive AB (renamed ACE Interactive) and a 50% share in Slovenia-based Elektronèek was completed in the first half of 2006.

In its summary Aristocrat declares that, given the difficult environment, a solid result was achieved. The short term outlook may be difficult to predict but growth potential for 2007/2008 and beyond looks strong. (E-08.22.06)

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