Despite a 14% increase in revenue and 20% increase in profit the Chief Executive Officer of Aristocrat, Paul Oneile, described the first half of 2007 as being particularly difficult. Ongoing subdued market demand and limited catalysts for overall growth were experienced in the company’s three largest regions – Australia, North America and Japan.

Asia Pacific, Europe and South Africa saw strong operating revenue and profit growth, but results were significantly impacted by the strengthening Australian dollar. 80% of Aristocrat’s revenues come from outside Australia. The company also invested more in research and development. The strong performance of businesses in emerging markets enabled Aristocrat to report a record interim result, with like-for-like earnings per share up 31%.

The company’s revelations of a 45% shortfall in first half sales to Japan, 11,063 gaming machines compared to a May forecast of 20,000, caused Aristocrat shares to fall 3.6% following the company presentation. The disappointing result in Japan is said to reflect the uncertainty in that market as the transition to Regulation 5 games takes place and the deadline for the removal of all Regulation 4 machines approaches.

The Japanese market has become highly competitive with some suppliers selling games below cost, something Atistocrat does not do. Operator demand so far remains weak, as there has been public resistance to the Regulation 5 games. Indications of future casino licensing in Japan are not expected bring about any opportunities until 2010 at the earliest. Although Aristocrat remains confident about its market in Japan, in the short term the company expects it to remain unpredictable.

In Asia Pacific Aristocrat achieved around 200% revenue and profit growth. In Macau the company’s overall market share has risen to approximately 60% over the past six months, installing over 5500 units. Product sales to Cambodia showed growth and in Singapore Aristocrat maintained an 80% share of the club market. In Europe profit was up about 200%, driven by record sales, particularly in France, Germany and Slovenia.

Aristocrat secured the first South African contract to install its casino management system ‘System 7000 Prime’ at a new Gold Reef City property. Profit more than doubled in South Africa. In South America revenue and profit declined; in North America revenue rose 5.7% while profit was flat. The company’s share of Electroncek revenue increased over 20%, with strong sales to The Netherlands, Spain and Asia, while profit increased by more than 40%.

Paul Oneile expressed the opinion that global opportunities would begin to see Aristocrat server based products contribute to earnings, although it would be some time before the full potential of these technologies was realised. Looking beyond 2007, he is confident that Aristocrat will return to the strong growth rate the company has experienced over the last few years.

Summing up the first half of 2007, Paule Oneile commented, “No one gaming jurisdiction represents more than 10% of our earnings, with only a couple over 5%. The diversification in the portfolio of jurisdictions generally means that our baseline earnings are largely sustainable irrespective of regulatory changes or market conditions in any one jurisdiction. An issue in one is often mitigated by something positive in another.” (E-08.23.07)

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