Asia Pioneer Entertainment Under Financial Pressure
One of the largest suppliers of casino equipment, ranging from hardware to complex cloud services, Asia Pioneer Entertainment has issued a profit warning to its shareholders as the firm faces some difficulties. This warning is a fairly standard practice for any publicly traded entity, according to local jurisdictions within the exchange where the company is floated they have been required to make this official statement in order to provide a true and fair view of the company’s financial position to potential investors.
Accountants, managers and stakeholders connected to Asia Pioneer Entertainment will be banging their heads together in an attempt to figure out the difficulties facing the firm, and charter a path towards a better financial position.
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The Macau-based casino equipment supplier has certainly become an integral part of the industry over the previous decade. Offering its clients a wealth of services that ultimately keep the industry thriving and customer satisfaction high. With a high exposure to the real economy, it is no surprise that these types of companies are beginning to show signs of financial fatigue.
The specific items on the financial statements causing concern as of late are to do with the capacity to generate revenues and control costs. The scale of losses in the most recent reporting period are in the order of €3.5 millions euros. Issuing its warning dutifully to shareholders the company statement went into further details about the possible causes behind these losses.
A worrying note on these latest round of financial statements is with the net income / loss on the statement of profit or loss. In the period ending in 31 December 2019 the company posted a net loss of €183K euros, this has been great exacerbated during the pandemic with losses tumbling out of control in the latest reporting period. These losses follow the pattern being set by the company’s revenues, which halved in the same reporting window.
Losses Attributed to Financial Lease Agreements Terminations
Speaking to their shareholders in light of the new performance review, the directors at Asia Pioneer Entertainment said that the reduction in revenues and subsequent increase in losses can be attributed to a reduction in liquidity, this was a result of two specific credit lines being scaled back in 2020. In the macroeconomic paradigm it is clear the pandemic has greatly reduced the ability of companies to maintain and easily secure credit, such financial lease agreements are difficult to maintain in times of low-liquidity.
Analyzing these results in even greater detail it is clear to see that the company was faced with a choice last year, and the decision to end the financial lease agreements in May was one that cost them a cool €2 million euros in termination fees.
In the broader market sense the closure of casinos around the world, along with the major reduction in footfall has led to a dampening in the demand for Asia Pioneer Entertainment’s products and services. Specifically, cash-strapped casinos are not looking to fork out on new electronic gaming equipment in the current market conditions.
Across the board the Asia Pioneer Entertainment business model has been hit with a number of challenges. Simply looking at the performance of the main business units concerning core inventory hardware, technical consulting services and maintenance have all witnessed huge drops in revenue generation capability with dives of approximately 50-60%.
Board Reiterates Long-term Financial Stability Not In Doubt
The board of directors at Asia Pioneer Entertainment have made the point clear that the firm does not represent a going concern. The firm has doubled-down on its pledge to be a company that operates with financial prudence. Over time, this resolve will likely be tested, and there is no doubt that the firm will need to showcase a return to normality in the financial sense as the lockdown comes to an end.
Looking closer at the financial statements and projections the firm has already indicated that net operating cash flow will return to an absolute positive, compared to a major negative level in the period ending at the end of 2020.
The improvement in cash-flow will greatly help the company recover from the challenges of a demand shock. It is already being said that the resurgence of cash flow in the business is partly down to a better management of the trade receivables asset class on the company’s balance sheet. Another bright light and positive in an otherwise dark and depressing financial period is the liquid cash available, cash and cash equivalents are expected to show a positive increase in the next reporting period.
Across the industry all sorts of businesses have felt the pinch. With a reduction of 80% in Macau Gross Gaming Revenue in 2020 it is not just casinos that have been under pressure, so to have suppliers, hotels, restaurants and any other company inextricably linked to the success of this sector.
