Chinese lottery suspension hits AGTech revenue in Q1

13 May 2020

A 40-day suspension Chinese lottery sales due to novel coronavirus (Covid-19) meant AGTech’s first quarter revenue declined 32.2% to HKD$13.7m (£1.4m/€1.7m/$1.8m).

The largest contributors to the AGTech's $13.7m in revenue for the three months to 31 March was lottery games and systems, which brought in $5.9m, down 17.3%, and lottery hardware, at $5.6m down 28.1%.

The business made an additional $1.9m from the provision of lottery distribution and ancillary services, down 44.7%, and $324,000 from games and entertainment, down 46.7%.

The supplier made a further $4.0m in other income, up 198.9% year-on-year.

However, the business’s expenses totalled $89.7m. Employee benefits and expenses were by far the largest expense, at $51.2m, though this was down 14.3% year-on-year. It paid a further $5.9m in purchases of or changes in investment, up 37.6%, and $5.8m in depreciation expenses, down 5.3%.

In addition, the business paid $12.9m in other operating expenses, down 22.9%, and $13.8m in other costs beyond these, up 6.0%.

As a result, the business made a loss of $72.0m for the quarter, up 37.3% from 2019’s loss.

The business’s income - and how it compared to 2019’s total - was heavily impacted by fair value changes of convertible bonds and the contingent consideration payables related to the 2014 purchase of handheld lottery hardware supplier Score Value.

The business made $9.2m through changes in value of the contingent consideration payables in 2020, after losing a combined $17.0m through fair value changes of these payables and convertible bonds in 2019.

In addition, AGTech made $12.8m in net financial income, up 133.6% year-on-year. However, losses in value of companies in which AGTech holds a noncontrolling stake - made up mostly of Paytm First Games, its joint venture with One97 Communications in India- increased 128.4% to $13.2m.

As a result, AGTech’s pre-tax loss came to $63.2m, down 9.6% from 2019’s loss. The supplier paid $1.4m in tax for a loss of $64.6m, down 8.9% from its loss a year prior.

After accounting for currency fluctuations, AGTech’s comprehensive loss came to $73.6m, 36.7% more than it lost in 2019 when accounting for currency changes.

The business will not pay a dividend for the quarter because of the effects of the virus.

Sales of lotteries in China were suspended after the traditional Lunar New Year break because of the outbreak of the pandemic. Rather than resuming after the holiday on 1 February, lotteries only began to resume sales from 11 March, drastically hitting revenue across the Chinese lottery industry, with Beijing only resuming sales from 6 May.

In February, China’s Sports and Welfare Lotteries saw sales almost entirely wiped out, bringing in just CNY1.3m (£149,825/€171,640/$186,640) for the month, while in March, the lottery industry reported sales of CNY10.51bn.

In related news, the supplier agreed a deal with virtual games provider Kiron Interactive to distribute Kiron’s games internationally.

“Our partnership with AGTech will provide a springboard for growth globally and we are looking forward to partnering with them and roll out our virtual portfolio to their clients in key international markets,” Kiron co-chief executive Steven Spartinos said.

“Our offering provides a broad range of virtual sports and number games that have proven appeal in a multitude of markets. This partnership demonstrates the growing appetite for our portfolio on a global basis.”

Kiron offers virtual football, virtual racing and a series of localised sports and numbers games. These games will be integrated into AGTech’s platforms and launched in its markets across Asia, Latin America and Africa.

“Kiron’s virtual offering delivers on all counts, from the graphics and visuals to the broad range of rapid-play betting experiences available 24/7,” AGTech vice president Charlie Zhang said.

“Our goal is to deliver the best content available in the market as a 2B service provider to our partners, and launching Kiron’s portfolio will add an extra dimension to our latest product portfolio.”