Ainsworth Game Technology (AGT), Australia’s second-largest domestic pokies manufacturer, cut its 2019 Q2 expected profits by $3 million. Ainsworth blamed intense market pressure for its inability to meet profit projections made in late 2018. The Newington-based company also blamed delays in poker machine approvals from regulators.
AGT’s executives told shareholders in a Tuesday investors meeting the 2019 2nd Quarter profit project to $4 million.
The Sydney Morning Herald reported the original projection was $7 million.
News of the shortfall sent Ainsworth share prices falling 9% to $0.76 overall. Later in the day, Ainsworth stock rallied to close at $0.83, which amounts to a 1.19% decline on the day.
The rally came after Ainsworth executives corrected its net debt, which the company originally announced as higher than it is. Mark Bryan, an analyst for Wilsons Advisory, said Ainsworth’s been in a “perennial forecast downgrade mode” for five years now.
Bryan dryly added, “This trend is continuing.”
The Wilsons analyst noted that demand from Australian casinos, pubs, and clubs remains light. Most gaming venues sit at their upward limit of allowed poker machines. Casinos and clubs therefore only order more pokies when their old ones wear out or they want an exciting new electronic gaming machine (EGM).
Mark Bryan added, “Domestically, slots buyers are seeing a fragile demand environment, leading to reduced capex. This restricted market opportunity is being compounded by Ainsworth Game Technology products failing to resonate with buyers.”
The pokies company took an impairment of $5 million for its Australian and digital assets. That included a $2 million impairment on 616 Digital, Ainsworth’s online social casino business. Its the startup cost of a new type of gaming site, which drives signups for marketing purposes and leads to indirect revenues.
Ainsworth also expects approval for its latest pokies soon, which should boost revenues in 2019-2020. The quarterly report stated, “Ainsworth Gaming Technologies is progressing with the development of new products and technologies with the view to improving future profit performance.”
While the domestic market slowed over the past few years, the company continues overseas expansion. Ainsworth Game Technology’s expansion bid continues apace, which brings a high investment cost. In 2016, Ainsworth North America opened a headquarters in Las Vegas. The facility houses 180 to 200 workers at any time, including software developers, engineers, computer programmers, animators, and graphic artists.
Ainsworth designed the $40 million, 291,000 square-foot headquarters as a way to speed production for its expanding operations in the United States. When the Las Vegas building opened, Ainsworth North America already represented 39% of the company’s revenues.
The company pursues two revenue streams in the USA: commercial casinos and tribal casinos. Many Ainsworth slot machine find their way into the tribal casino industry, where AGT continues its ascent as a top competitor. Overall, Ainsworth is the 5th-largest gaming machine manufacturer in the United States.
AGT continues work with its major shareholder, Novomatic AG, which boosts its overseas expansion. Novomatic is an Austrian land-based poker machine and online gaming software provider which expanded globally.
Novomatic began its vast growth in Western Europe in the 1980s, then parlayed its reputation into a major expansion in Eastern Europe in the 1990s. Here in the 21st century, Novomatic became a major online operator with several buyouts and innovation in mobile gaming.
In that way, Novomatic serves as a template for Ainsworth’s own global growth program.
Aussie billionaire and pokies legend Len Ainsworth founded AGT in 1995. Ainsworth also founded Australia’s largest pokies manufacturer, Aristocrat Leisure, in the mid-1950s. The only reason Len Ainsworth left Aristocrat is his doctors diagnosed him with terminal cancer.
By the time Len Ainsworth realized the diagnosis was less-than-terminal, he had turned over Aristocrat to his children. Not wanting to deny his children their legacy after they stepped up to lead the pokies giant, Len instead launched a second pokies manufacturer. Therefore, he became one of Aristocrat’s top competitors.
Nearly 25 years later, Ainsworth Game Technology competes at a high level in the Australian pokies and US slots markets. Despite its growth troubles in the past few years, much of its limited profits come from investments that should pay off in the 2020s.