07 February 2003 13:14
Aristocrat wipes more than $800m after shock profit warning
SYDNEY, Feb 7 AAP - Aristocrat Leisure Ltd today had more than $800 million wiped off its market value after it
shocked investors with a warning that its annual profits would not meet forecasts. Shares in the slot machine maker
plunged 43 per cent after Aristocrat said a failed South American deal meant its net profit for calendar 2002 would not
meet consensus market forecasts. Its shares closed $1.82 weaker at $2.40 after being placed in a trading halt yesterday.
Ahead of the trading halt they were trading at $4.22. The shares reached a low today of $2.25 with more than 42 million
shares traded. Net profit for the full year to December 31, 2002 was now expected to be $80.2 million, subject to final
audit, Aristocrat said in a statement. The company previously indicated it was confident of meeting market consensus
earnings forecasts of $109 million for the full year. Aristocrat, which is the second biggest gaming machine vendor in
the Americas, said the announcement came after a South American customer failed to fulfill a number of obligations in
relation to a contract. The large transaction, involving the sale of a significant number of electronic gaming machines,
was concluded in December. "Subsequently, the customer has failed to fulfill a number of obligations in relation to
this contract. The board and management of Aristocrat have now decided that it wouldn't be prudent to recognise
this revenue in the 2002 full year result, although the company is continuing to negotiate with the customer,"
Aristocrat said. The company said a further ramification of the downgrade was that inventory at December 31 would be
higher than planned because of the taking back of the machines in question. Ausbil Dexia equities director Paul Xiradis
said the announcement came as a major surprise to the market. "Clearly given the extent of the fall it is a major
surprise," Mr Xiradis told AAP. "One contract out of South America detracting that much profit from the group
compared to consensus where they are actually confirming that things are actually travelling well seems to be very, very
surprising." He said a number of questions needed to be asked. "It (the announcement) raised more questions
than gave answers so there is a credibility issue as far as management is concerned which needs to be overcome fairly
quickly if they are going to recover," Mr Xiradis said. "There seems to be a little bit more to it than meets
the eye at this stage and that is quite concerning." Shaw Stockbroking industrial analyst David Cooper agreed there
was a credibility problem. "It is surprising the South American market has been such a strong component of profit
with 30 odd per cent," Mr Cooper said. He said the market wanted to punish the stock after the announcement.
Aristocrat said shareholders would still receive a fully franked 12 cent her share dividend payment. The company first
floated on the stock exchange in 1996. Aristocrat floated 38 per cent of the company to the public at $2.90. Since then
the stock has traded as high as $24.80. In December, Aristocrat moved into the Russian market as part of its global
strategy. Aristocrat reports its annual results on February 18. AAP jwm/sh
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