Ainsworth Gaming Tech. Revenues Drop
The casino hardware and gaming manufacturer Ainsworth Gaming Technology has revealed in their yearly financial statements a drop in revenue. The statements released last month reveal a significant drop in revenue within the Australian market. The revenue slide is being attributed to a number of key factors: Australia has become increasingly competitive amongst casino gaming manufacturers in the past 2 years, this has resulted in lower than expected sales in the region. On top of this, the new product line released by Ainsworth throughout 2019 did not perform as well as forecast. The culmination of reports released to investors reveals a tough year for the company, can they turn it around in 2020? We dig deeper into the following sections.
Surely It’s Not All Bad?
Despite experiencing one of the worst economic slowdowns in the firm’s history – there were indeed some financial highlights for the company in 2019. Upon analysis of the company balance sheet – which as anyone with a basic accounting knowledge will know is a snapshot of a company’s financial health at a specific moment in time – there are many positives to examine. Namely, the growth strategies that are deployed by Ainsworth are majority self-funded, as opposed to borrowing, increasing credit and burning through equity. Research & development as a percentage of revenue was up to %17 from %13. This is always a sign of positivity from any company, to be investing a large amount of the money you are making back into new products is a sign of ambition, growth and positive future outlook.
Outside of the Australian market, there were many other positives for the company. North America delivered a fantastic year of financial growth – reporting a revenue increase of %8 and an increase in net income of %16. The firm has attributed this uptick to the hard work and perseverance of its in-house sales team. New products such as the Quick Spin product family and the A640 cabinet were very well received by the customer base.
Elsewhere there were positives and financial success too – Latin America performed particularly well over the previous 12 months. The region saw the company deliver a total profit of $24m, despite facing challenging market conditions and an increase in competition within the casino gaming sector. Legacy gaming performance was particularly strong in Latin America, and provided a stable net income for the firm as their classic products continued to be the solution to the client’s needs.
Future Prospects in the Australian Market
The previous 3 quarters have not been favorable for investors and associated with Ainsworth Australia. But in a message to the company shareholders, there is a message of optimism being pushed. The company is preparing to release a brand new product line in Australia in 2020. By transitioning to a new product suite, Ainsworth expects to invigorate growth in a key market, attract new customers, and boost the fledgling revenue for the region.
As a result of the poor performance, the Australian division of Ainsworth is planning to reevaluate its R&D strategy. As the Chairman of Ainsworth Gaming Technology explained in his annual report to shareholders:
“The Australian operations results demonstrate the need to re-evaluate our R&D strategy. This is the key to long term sustained performance. This review should be completed by the end of the calendar year and is expected to lead to a targeted increase in investment.”Graeme Campbell, Chairman, Ainsworth Gaming Technology
It is clear that the domestic performance in Australia has been less than favorable for the past 12 months. The adverse effects are fully attributed to competitive pressures and poor product performance. In the next year the company will be seeking to revitalize their revenue streams, increase the number of sales to corporates and casinos – and boost net income for the following quarter.
The firm is undergoing a significant product transition period. With the new products Loaded with Loot and Crazy Jackpot launching in 2020, performance is expected to be re-energized. With the new product line earning exceptional customer feedback already, prospects of a turnaround in financial performance seem highly possible.
Novomatic Expected to Help
Novomatic holds a majority stake in Ainsworth Gaming Technology. The 52% stake in Ainsworth Gaming Technology makes them a major source of equity for the firm, and it times of fiscal trouble, a key instrument in rescuing the company’s fortunes. With 2020 showing signs that it could be another flat year in the Australian market, the firm will be turning to their main investor for support.
The main benefit of having an investor like Novomatic is the experience and capabilities they bring to the table. They are extremely well connected in the Australian market, and will be able to leverage supply chain potentials and unleash a series of new revenue streams for the company. The question is, will they be willing to do this. There comes a moment for any investor when the risk to reward ratio is no longer favorable. Novomatic will surely be wanting to see a glimmer of profitability before they sink more capital investment into the casino software and hardware distributor.
The Austrian based venture fund brings additional synergy and strategic benefits to the table. With a controlling stake in the company, Novomatic must bear the responsibility to rescue the firm’s fortunes in a potentially very lucrative market. If they can navigate through these rough financial waters, we could witness success and growth on the same scale as the many profitable markets Ainsworth Gaming Technology operates in.