Aussie gaming firm admits overstating profit

Australia's Aristocrat Leisure has conceded in the Federal Court that it overstated profits from its disastrous foray into the South American poker machine business in 2001 and the first half of 2002, and should have corrected bullish statements about its full-year result for 2002.

The announcement in February 2003 of a profit drop in the face of predictions of a 27 per cent increase claimed the jobs of chief executive Des Randall and others, wiped $A1.5 billion ($NZ1.76 billion) from Aristocrat's stockmarket value in 2003 and spawned a shareholder class action which opened yesterday.

The shareholders' law firm, Maurice Blackburn Cashman, estimates that the case could cost the company $A190 million on one assessment of damages and $A396 million on a second.

Aristocrat has yet to file a statement of defence reflecting its 11th-hour admissions but it will argue these sums vastly overstate any losses that can be legally linked to its misadventures when it tried to sell mostly second-hand Australian poker machines to casinos in Brazil, Peru and Colombia.

The shareholders' barrister, Stephen Gageler, SC, said that he would call an expert witness who would show that an investor holding shares at the time would have lost a cumulative $A2.47 per share from the misconduct.

Mr Gageler said he interpreted an expert report for Aristocrat as producing a comparable figure of 45c. Even if Justice Margaret Stone agreed completely with the second analysis, "we would still claim a substantial judgment", Mr Gageler said.

The case is about four deals to sell what Mr Gageler called "old pokies from clubs in Australia" to South American companies with "credit risks".

"To the knowledge of [senior management] but apparently unknown to Aristocrat's increasingly suspicious and nervous auditors, PricewaterhouseCoopers, each transaction was an unmitigated commercial disaster from the beginning," he said.

Apart from question marks over whether the South American companies would pay their bills, there were problems with customs clearances and regulatory approvals and Aristocrat "was simply unable to deliver poker machines that were in working order".

Mr Gageler attributed this to the Sydney company's "great haste in trying to get the transactions done".

In pre-trial talks culminating on Wednesday, Aristocrat admitted it had wrongly booked $A15 million in pre-tax profit for the year to December 2001 and $A12 million for the half to June 2002.

The company has also conceded that from December 10, 2002, it had no reasonable grounds for sticking with a forecast it would earn $A109 million after tax that year.

The shareholders have agreed to drop claims the profit should have been revised from October 29, 2002, and that a forecast for 2003 was also misleading.