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Public company info - REXLot Holdings Ltd. , 00555.HK

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REXLot Holdings Ltd., 00555.HK - Company Profile
Chairman -
Share Issued (share) 15,043,000,000
Par Currency Hong Kong Dollar
Par Value 0.01
Industry Gamble
Corporate Profile Business Summary: The Group is principally engaged in lottery system and games development business and distribution and marketing of lottery products in China. Performance for the year: For the year ended 31 December 2017, the Group recorded a revenue of approximately HK$402,305,000 (2016: approximately HK$1,252,144,000), representing a decrease of 67.87% over that of the last year. Loss attributable to equity shareholders of the Company was approximately HK$704,265,000 (2016: approximately HK$393,007,000). The loss per share was 6.93 HK cents (Adjusted 2016: 3.88 HK cent). Business Review Lottery Business The Group’s lottery business can be broadly divided into System and Games Development Business (“SGDB”) and Distribution and Marketing Business (“DMB”). Revenue of the lottery business accounted for 100% of the Group’s total revenue. For the year ended 31 December 2017, revenue of the Group amounted to approximately HK$402,305,000, representing a decrease of 67.87% over the same period last year (2016: approximately HK$1,252,144,000). The Group recorded a loss before taxation of approximately HK$520,355,000 (2016: approximately HK$416,091,000). The decrease in revenue in the year reflected a macro driven sales decline in parts of the Chinese lottery market, multifaceted challenges faced by the Group in the industry and an one-off impact related to the restructuring of the Group’s SGDB. The Group’s core operations continued to experience strong pressure from the unfavorable operating environment, especially in scratch cards market where the effect of marketing efforts did not live up to expectations. With no meaningful progress made in the development of paperless lottery during the year under review, uncertainties in the regulatory environment continued to hinder the Group from benefiting its solid infrastructure in paperless lottery operations. In particular, the operations of mobile lottery business was adversely affected. There were a number of one time events that impacted the Group’s revenue and earnings in 2017. In February 2017, the Group completed the restructuring of SGDB and the disposal of its subsidiaries operating in the traditional Welfare Computer Ticket Games (“CTG”) market. As a result, there was a substantial decrease in the Group’s revenue as the revenue of the Sinodata Group was not consolidated into the Group’s consolidated account after completion of the Disposal. In addition, loss on disposal of subsidiaries after taxation of approximately HK$49,910,000 was recorded in relation to the Disposal. Furthermore, as required by applicable accounting standards, impairments on goodwill of a total of approximately HK$301,283,000 and an impairment of an investment of approximately HK$67,617,000 were recorded for the year under review. The impairments on goodwill were made in relation to the Group's business units engaged in the provision of Sports CTG equipment, Welfare Scratch Cards printing and Sports VLT to reflect the lower value in the assets of these business units, which was due to the continued decline in revenue attributable to a slowdown in Sports CTG equipment replacement cycle, keen competition among industry players and the unfavourable operating environment in Scratch Cards and Sports VLT markets. The impairment of approximately HK$67,617,000 was made in relation to the Group’s investment engaged in paperless lottery operations. Despite challenges in the lottery market, the Group made progress towards its long-term strategy to improve and transform the Group’s business portfolio. In light of the uncertainties in regulatory development and increased competition in the lottery market, the Group commenced evaluation of various investment opportunities to alleviate these challenges and seize new opportunities to deliver shareholder value. During the year under review, the Company announced proposed fund raising plans (i.e. a Rights Issue which was completed in March 2018 and a proposed CB Subscription), which would provide an overall solution to the financing of the Group. Through the proposed fund raising plans, the Company shall be able to raise sufficient offshore funds to settle the Group’s current offshore liabilities, including the Bonds and shareholder’s loans. Following the successful completion of the Rights Issue, the CB Subscription is expected to be completed in mid-May 2018, subject to obtaining shareholders’ approval at the special general meeting of the Company. The Company believes that after the completion of the proposed fund raising plans and repayment of the existing offshore liabilities, the Company will be able to strengthen its capital structure and resume its sound financial position, and will be poised to focus on growing its business. Chinese Lottery Market Chinese lottery market registered total lottery sales of approximately RMB426.7 billion in 2017, increased by 8% compared with 2016. Total sales of Welfare Lottery was approximately RMB217.0 billion, increased by 5% compared with 2016. Welfare CTG accounted for about 73% of total Welfare Lottery sales; Welfare Scratch Cards was about 6% and Video Lottery Terminals (“VLT”) took about 21%. Welfare CTG sales in 2017 was approximately RMB158.0 billion, increased by 8%. Welfare Scratch Cards sales was approximately RMB12.6 billion, down 15%. VLT sales increased 4% to approximately RMB46.2 billion. Sales of Keno was approximately RMB18 million, decreased 31%. Total sales of Sports Lottery was approximately RMB209.7 billion. Sports CTG accounted for about 94% of total Sports Lottery sales and Sports Scratch Cards was about 6%. Sales of Sports CTG, including Single Match Games (“SMG”), increased by 13% to approximately RMB197.7 billion. Sports Scratch Cards sales was approximately RMB12.0 billion, down by 12%. Total sales of Sports VLT was approximately RMB7.9 million. System and Games Development Business The Group’s SGDB is an active participant in the provision of lottery system and specialized equipments for both CTG and scratch card products in China. During the year under review, the Group’s SGDB continued to actively participate in the upstream and mid-stream lottery market by providing various lottery system and specialized equipment for both Welfare and Sports lottery markets. Welfare CTG Business 2017 was a transformational year for the Group’s SGDB. During the year under review, the Group completed the restructuring of its Welfare CTG business and disposed part of this operations which covered the manufacturing and provision of Welfare CTG machines and supporting system for traditional lottery market. After completion of the Disposal in February 2017, operating results of the Sinodata Group were no longer consolidated under the Group’s Welfare CTG business unit. As a result, performance of this unit was adversely affected. After the completion of the Disposal, the Group focused its business on the non-traditional market segment for Welfare CTG. Despite the one-time impact on operating results resulting from the restructuring, the Group is confident in the growth potential of the non-traditional market given consumer preferences for relevant lottery products in this particular market segment remains strong. In 2017, market performance of the traditional Welfare CTG market (national draw based games) remained stable while the non-traditional market (regional and high frequency games) continued to maintain a fast comparable growth. It is expected that market players will put more focus and resources on the regional and high frequency games market. In particular, the Group’s Welfare CTG business is foreseen to experience strong competition from these players in the market. Given the above development, maintaining or improving the earnings performance of the Group’s Welfare CTG business is expected to become more challenging. The Group adopted a number of important actions in the second half of 2017 to improve the execution of the streamlined Welfare CTG business unit in preparation for the competition ahead. Welfare Scratch Cards Business The Group is involved in the validation and printing business of Welfare Scratch Cards in China. Total sales of Welfare Scratch Cards in 2017 declined by 15% when compared with 2016. Performance of the Group’s validation and printing operations were adversely affected by the lackluster sales performance of Welfare Scratch Cards market. The Group has jointly controlled interests in a validation system and specialized equipment provider which provide validation services for the Welfare Scratch Cards market. During the year under review, the Group rolled out relevant systems and equipment of validation services to support the revitalisation initiatives taken by lottery authorities. Meanwhile, the Group’s printing operations focused on delivering various seasonal and thematic games to the market through its cooperative venture with Shijiazhuang Offset Printing House. Sports CTG Business The Group’s Sports CTG business is engaged in the manufacturing and sales of CTG/SMG terminals to provincial Sports Lottery Centres across China serving the needs of traditional CTG segment and supporting the development of SMG. Replacement demand for new Sports CTG/SMG terminals has been driven by the needs to modernize sales equipment in the physical lottery distribution network. Despite the new tenders secured by the Group, continued declines in revenue were recorded due to a slowdown in equipment replacement cycle and keen market competition over the years. Consequently, with a view to reduce the ongoing operation cost of this business unit by streamlining its operating structure, the Group has entered into a memorandum of understanding to dispose a group of subsidiaries, the Kingsail Group. While agreement has not been reached, the Group will continue the negotiation with the third party under the memorandum of understanding on this matter. Distribution and Marketing Business The Group’s DMB is a major participant in lottery distribution in China. It has successfully established a comprehensive distribution platform which consists of a widely diversified and recognized physical retail network and a portfolio of innovative and advanced electronic lottery platforms. The Group’s downstream lottery operations pledge to provide reliable, efficient and innovative lottery services to address the needs of end consumers in lottery market and assist lottery authorities to promote and develop the Chinese Lottery market in sustainable manner. During the year under review, the unsatisfactory sales performance of the scratch card market in China continued to hamper the performance of the Group’s DMB. While the uncertainties in the regulatory environment remain, the Company considers that paperless lottery will present long term growth opportunities when it resumes. The Group has reserved adequate financial resources so that it may respond swiftly to the development opportunities in paperless lottery once relevant regulations are formalized. Scratch Cards Distribution Business The Group’s scratch cards distribution business focuses on the distribution and sales of scratch cards through a physical lottery distribution network. This network comprises selective prime locations that have diversified and recognized sales distribution channels. In 2017, the aggregate sales of Welfare Scratch Cards and Sports Scratch Cards in China was approximately RMB24.6 billion, decreased by 14% as compared to 2016. Despite actions taken by the lottery industry to reinvigorate the scratch cards market, the anticipated improvements in overall scratch card market did not materialize during the year. The performance of the Group’s operations has been adversely affected under this challenging environment. Additionally, the Group experienced increased competition in this market segment with the appearance of new market players. The increased competition intensified market pressure against the backdrop of macro headwinds in the scratch cards market. Although it is expected that the operating environment in the 2018 may not experience any notable improvements, the Group has been making progress to improve its operation management in order to mitigate the negative impacts created by the above impediments in the market. Single Match Games Business SMG achieved record-breaking sales in 2017 and reached another new height of RMB80 billion, increased by 19% year over year. The extraordinary performance of SMG was achieved despite the absence of sizeable international soccer tournament comparable with the UEFA European Championship in 2016. This clearly demonstrates that the ongoing developments, such as increased options of game play and enhanced prize payout, have successfully turned SMG into a predominant lottery product in China enjoying wide support from lottery players. The Group operates the SMG business through its physical retail network since paperless electronic lottery distribution has been suspended since early 2015. During the year under review, the Group’s distribution network engaged customers with enhanced marketing efforts to take advantage of the opportunities arising from the rapid market growth. While it is undeniable that the SMG has achieved a great success through the physical distribution network, performance of SMG could have been taken to the next level with the assistance of paperless distribution channel. During the year under review, the Group noticed that People.cn divested its investment in the Company under the Okooo platform. Despite that, the Group remains positive on the long-term prospect of paperless distribution platform as when the market is reopened, and will continue to reserve and invest resources in paperless lottery platform to capture the future growth opportunities. Mobile Lottery Business and Mobile Electronic Lottery Platform The Group self developed a Mobile Electronic Lottery Platform (“Mobile ELP”) for its mobile lottery business. The Mobile ELP offers a multi-functional back-end system with convenience interface to facilitate lottery distribution over mobile devices. Mobile ELP was designed to improve the convenience of lottery purchase by connecting players directly to the centralized system of provincial lottery centre, enabling a safe and reliable lottery purchase experience. During the year under review, the regulatory environment for operating Mobile ELP remained uncertain, as signified by the suspension of a trial mobile operation in the market. Although the Group’s mobile lottery business has been brought to a halt by the regulatory uncertainty, the Group remains cautiously optimistic about its future and will continue to monitor market development closely and review its business strategy during a challenging transition period. Sports Video Lottery The Group has participated in Sports VLT operations in support of Hainan Province’s local tourism development since 2015. Currently, it offers four distinctive lottery games for local lottery consumers and tourist in Hainan. Overall, sales of Sports VLT in the market was unsatisfactory during the year under review, but the Group will continue to play its part in fostering the development of this lottery product and contributing the local lottery market. Prospects: During the year under review, the Group has been redoubling its efforts to drive improvement in various areas of operations at a time of strong headwinds in the lottery market. All the painstaking work laid the foundation for the Group to overcome challenges in the evolving lottery industry. Looking ahead to 2018, it is anticipated that the Group’s lottery business will continue to face a difficult operating environment due to uncertainties in the regulatory framework, particularly in the paperless lottery segment. However, the Group still believes that paperless lottery will operate under a transparent and well regulated model when it is relaunched in the future. Whilst the PRC authorities have yet to announce the schedule for formalising paperless lottery regulations, the Group expects paperless lottery to present long term growth opportunities for the lottery industry and the Group. Our ability to stay competitive in the industry and respond swiftly to relevant development holds the key to future success. Therefore, retaining adequate resources in order to swiftly respond to the development opportunities appear in the lottery market once paperless lottery is formalized in the PRC will be among the Group’s top priorities. It is a critical part of our core business strategy to support the lottery authorities in modernizing the customer experience and staying relevant to lottery consumers via different means. Being a leading player in the lottery market, the Group has always been a desirable partner of the lottery authorities since our growth priorities are aligned with evolving consumer needs in the lottery market. Going forward, the Group will continue to focus on growing and investing in sectors where we believe we can drive long-term sustainable growth. The Group’s financial position is expected to improve substantially after proposed fund raising plans have been completed and the financial challenge posed by the Bonds redemption obligation has been addressed. With that, the Group is confident of making further progress underpinned by the exciting growth opportunities ahead. With strengthened capital structure and sound financial position, the Group not only will continue to strive to remain competitive in the lottery market and seek to capture its future growth opportunities, but also it will proactively looking for opportunities to diversify its business portfolio in order to tapping into other potential opportunities that can provide attractive returns on capital. The Group has tentative plans to diversify its business into the computer gaming business and is actively searching for investment opportunities in the entertainment business. Dedicated taskforce has been commissioned to undertake an in-depth evaluation and strategic review over these important strategic moves. In addition, in order to further enhance the Group’s profile and finance capability, it intends to introduce and establish strategic partnership with renowned financial institutions, active discussion and negotiation are underway. With the right vision in place, it is envisaged that the execution of our ongoing strategies will allow the Group to weather through the challenging environments and to resume healthy profitable growth beyond.

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