Gaming machine maker Aristocrat Leisure Ltd expects a "disappointing" first half net profit between $40 million and $50 million, mainly as the Japanese market weakens.
The earnings downgrade, relayed to the annual meeting in Sydney, came after it asked for a trading halt so it could raise up to $275 million in new capital.
The reason is to increase cash during the weak economic climate, protect its credit rating and to help it avoid borrowing more money.
Chairman David Simpson explained to the meeting.
"Key reasons for the capital raising include strengthening our balance sheet, improving our credit metrics to support our current BBB- investment grade credit rating and provide additional debt facility headroom.
"This also provides financial flexibility to take advantage of strategic opportunities as they arise.
"The capital raising has been structured to allow all shareholders to participate in what is an important step by the company to secure our future and I encourage you to participate in it.
"A special allocation of $20 million will be available for Ainsworth family interest to participate in the raising."
Aristocrat said in a statement before the meeting to the ASX that the earnings downgrade was due to a $30 million to $35 million pre-tax deterioration in Japanese profitability because the company hadn’t released any new games and weak market demand.
The company’s Japanese division will post a pre-tax loss, following the prior corresponding period’s pre-tax profit of $26.6 million.
It says it is planning to release a licensed game in Japan in the second half, which could boost performance and the weaker performance in Japan was partially offset by sales in Australia and North America, the two biggest markets for Sydney-based Aristocrat, where the company had increased market share.
Besides the Japanese situation, other factors influencing the downgrade included:
Generally lower demand across the product range as customers defer capital spending; Improved North American market share in a weaker overall market; A stronger US dollar; Improved market share, volumes and profitability in Australia; Continued investment in research and development; Guidance includes a net one-off profit of $4.6 million after tax, comprising profits on the sale of surplus properties offset by restructuring costs.
”The guidance for the first half is disappointing and reflects a combination of continued challenging macro-economic conditions, as well as a lack of game releases and weak market demand in Japan,” Mr Simpson said in the statement.
The company, which will release results for the six months to June on August 25, warned that the "guidance and the final half-year results remain subject to a number of factors including general economic and trading conditions, exchange rates and the relatively short forward visibility of operator demand".
Mr Simpson said in his statement that the "guidance for the first half is disappointing and reflects a combination of continued challenging macro-economic conditions, as well as a lack of game releases and weak market demand in Japan".
"However, our performance in the Company’s two largest markets, Australia and North America, has been encouraging with growth in market share as we continue the rollout of Viridian." (A new poker machine platform)
"In conjunction with the global strategic review, the Company has embarked on a number of initiatives to immediately reduce costs and right size the business for the current operating environment," added Mr Simpson.
Chief Executive Officer and Managing Director elect, Jamie Odell said "While the operating environment is likely to remain volatile, the second half is expected to show considerable improvement".
In the second half, Australia is expected to benefit from the availability of Viridian in Queensland, while North America will benefit from the launch of the RFX stepper and roll-out of innovative recurring revenue products, such as Jaws and Hit the Heights.
Mr Odell concluded, "The global strategic review – the results of which will be communicated to the market in August 2009 – will ensure the Company is well positioned to capture opportunities as and when global market conditions improve".
