When I opened the ‘Find Your Company’ spreadsheet to see what company I would have the pleasure of investigating their Annual reports, my heart sunk when I saw Ainsworth Game Technology (AGT) next to my name. I had no idea what this company does nor do I have any interest in gaming. However, I later learnt that they were in fact a slot machine company, so technically gambling. To my dismay, I downloaded the firm’s Annual Reports and began to see if a company that produces slot machines has anything intriguing and/or unusual in their reports. But first I had to fully comprehend what my company in fact produces.
Who is Ainsworth Game Technology?
Founded in 1995 by Len Ainsworth, AGT’s vision is to “deliver excellence in Global Gaming Solutions” (AGT, 2017) and now in 2017 have 6 directors (LH Ainsworth, GJ Campbell, MB Yates, DE Gladstone, CJ Henson and HA Scheibenstock). Being in the slot machine industry, they design, develop, assemble, sell and service their own slot machines.
However, this wasn’t the first company Len Ainsworth’s had founded. In 1953 he founded Aristocrat Leisure Ltd, which coincidentally enough, is also another gaming company who produces slot machines (Forbes, 2017). Nevertheless, he left Aristocrat in 1994 due to a cancer scare. It was then a year after this Aristocrat had a new competitor (Kruger C, 2016).
The Annual Reports:
Domestic Revenue vs International Revenue
The first thing I noticed on their 2016 annual report was that they had made a profit for 2016, which is a good start. As I continued scrolling through the pages, a key point that struck me was that even though this is an Australian company, it stated that, “gains in the key market of the America have assisted in increasing the contribution of revenue from international markets from 61% in 2015 to 71% in the current year”. Thus, the main revenue for this Australian company is actually from other countries outside of Australia, such as America and New Zealand. “Domestic revenue” for Australia only was 29% in 2016. This was interesting for me, as even though this is an Australian company their focus should be, and is on, their markets in other countries.
This point was further confirmed when on 22nd September 2016 the company opened a new headquarters in Las Vegas (i.e. the hub of gambling). The success of this expansion however won’t be fully confirmed until the 2017 Annual report.
Future Developments for 2017
The firm stated in their report (for 2014, 2015 and 2016), that ‘further investments in research and development will assist the ongoing expansion’. In August 2015 the firm launched a new slot machine, the A600 at the Australasian Gaming Exhibition (AGE), which they are planning to release in international markets this year.
They are also aware of the increase in social media and online technology and are targeting and executing strategies within these segments, both real money and social gaming. Consequently, they invested in 616 Digitial LLC and in February 2015, AGT launched its new online casino “Players Paradise Slots”. It is available through Facebook and on the Android and Apple iOS store and since its launch has had over 1 million downloads (Google Play, 2017).
Interesting points in the Company Spreadsheet
Attached below is AGT’s spreadsheet. In this document, a few values should be highlighted. Please note that the figures stated are in thousand of AUD. Firstly, in the Statements of Movements in Equity, whilst they had been making a steady profit, increasing roughly $10,000 every year, in 2016 ($55,703) they actually made less than 2015 ($70,353). Why is this so? Further investigation into their accounts revealed the following:
- In the Balance Sheets, from 2014 their cash and cash equivalents asset has decreased from $71,999 (2014) to $43,300 (2015) and then to $26,433 (2016). That is a $45,496 decrease within a 2-year time frame. So where did this money go?
- Looking then at their non-current assets, there has been a significant increase in their property, plant and equipment; $55,279 (2015) to $109,493 (2016) and also their intangible assets; $33,090 (2015) to $74,124 (2016).
- Non-current liabilities increased significantly with loans and borrowings from $421 (2013) to $67,777 (2016).
- There was also a substantial increase of $13,100 in their sales, service and marketing expenses from $27,516 (2013) to $52,028 (2016).
As indicated above, there were major changes from the year 2015 to 2016 that wasn’t in trend with AGTs previous figures in 2013 and 2014. I believe this is a reflection of their company business direction to open their headquarters in late 2016. AGT has significantly invested funds and goodwill into this overseas expansion.
This would be evidenced by their investment of cash and cash equivalents asset into a new building, thus increasing their property, plant and equipment and intangible asset. It appears this expansion has also required additional loan facilities to assist in the development, hence the increase in loans and borrowings liability. The increase in sales, service and marketing expenses is potentially a result of the new launch of a product, as discussed earlier, with their launch of their new A600 at AGE in August 2015.
I have drawn these conclusions based purely on the financial reports provided. Please advise your thoughts. What suggestions do you have for the significant changes in the accounts?
Areas of Difficulty Understanding in Firms Financial Report
Within the annual report, I was confused with the Earnings per share, as if my company is expanding overseas and presumably doing well, why would have its share price dropped from $0.22 in 2015 to $0.17 in 2016?
AGT Annual Reports: