AGTech pursues further diversification after 56.7% revenue growth in 2021

| By Daniel O'Boyle
Alibaba-owned lottery hardware and services provider AGTech said it would continue to pursue diversification even though its revenue rose 56.7% to HK$253.2m (£24.5m/€29.3m/€32.4m) in 2021.

Lottery hardware sales made up the majority of AGTech’s revenue, with this total rocketing 129.1% to HK$168.0m. During 2021, AGTech won 27 lottery hardware tenders to supply lottery terminals in a number of Chinese regions, municipalities and provinces such as Hubei, Shanghai and Henan.

Lottery distribution services revenue rocketed by 75.3% to HK$42.9m while games and entertainment revenue was up 22.9% to HK$21.6m.

In addition, the business made HK$21.6m from non-lottery hardware. This was a new revenue stream for 2021, enabled by the business branching out into point-of-sale terminals for retail stores in China.

Looking at revenue geographically, mainland China brought in HK$235.1m, with the remaining HK$18.1m coming from the rest of the world. Rest-of-world revenue was predominantly games and entertainment revenue from India and payment-related services in Macau.

AGTech also noted that three customers each made up more than 10% of its revenue, bringing in HK39.3m, HK$32.1m and HK$25.3m, respectively. While three customers also made up 10% of revenue in 2020, two of those customers were different for 2021.

In addition to the HK$253.2m in revenue, AGTech made a further HK$16.0m – up 46.9% – from other income, plus HK$13.3m in other net gains.

Despite the increase in revenue, employee benefit expenses declined by 34.7% to HK$116.8m.

However, the business also incurred $119.8m in costs related to purchases of inventories. This was up 166.2% from 2020.

Depreciation expenses were down by 13.5% to HK$20.6m while other operating expenses were up 35.5% to HK$91.2m.

As a result, AGTech made a $65.8m operating loss for 2021, almost exactly half of its operating loss in 2020.

The business made a further $18.6m loss through changes in the fair value of its financial assets, but made $17.2m in other financial income.

This led to a pre-tax loss of HK$67.2m. The pre-tax result in 2020, meanwhile, had been impacted by a HK$69.6m gain due to not having to make certain contingent consideration payments, as well as an $83.2m loss from businesses in which it owns a non-controlling stake. As a result of these, the business had made a $100.6m pre-tax loss in 2020.

After a $4.2m income tax credit, AGTech made a loss of $63.1m, down 43.4% from the prior year.

After also accounting for a $14.8m gain from currency exchange changes, the business made a final net loss of $48.2m.

During the year, AGTech announced that it had agreed to acquire patent business Macau Pass Holdings. At the time, AGTech said the acquisition would create “tremendous” synergies to its existing business, particularly in terms of its mobile games and entertainment and the supply of non-lottery hardware businesses.

Last week, AGTech received all relevant regulatory consents and approvals to proceed with that deal. In its earnings announcement, it said the deal would allow for further diversification of its operations.

“With the recent announcement on the acquisition of Macau Pass Holding Ltd, the group will continue to dedicate our commitment and support to grow our business to further capitalise on diversification opportunities,” it said.

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