China’s AGTech Holdings said that it remains optimistic about the outlook for the business despite the company posting a 2 per cent drop in revenues and a loss of HK$52.7m in its results for the first half of 2013.

Revenues for the first six months of the year fell 2 per cent to $97.2m following a poor first quarter performance which saw revenues decline by 11 per cent year-on-year.

Gross profit increased by 7 per cent to $50.9m, with margins up from 48.0 per cent a year ago to 52.4 per cent. Profit from business operations amounted to $1.4m, compared to a loss of $2.6m last year.

The company generated a loss for the period of $52.7 however, due mainly to share-based payments of $49.0m, of which $38.5m was a one-off payment related to share options granted to a company beneficially owned by Cheung Lup Kwan, AGTech’s strategic shareholder.

Excluding this item, the loss would have narrowed substantially to $14.1m, from $27.2m in the corresponding period a year ago.

AGTech chairman and CEO John Sun said: “We are pleased to witness continuous growth in the underlying profitability of AGTech’s business.”

During the period, AGTech’s virtual sports betting game Lucky Racing maintained its leading position in the Hunan, accounting for approximately 30 per cent of total sports lottery sales in the Chinese province.

The company said that it is actively working with national authorities to integrate the game and system into the national sports lottery’s ‘Next Generation’ system, with the conclusion of the IT project expected to remove the final technical hurdle for the game’s national roll-out.

AGTech is currently working with another Chinese province to launch a new nationally approved virtual fixed odds sports betting game featuring a virtual match rather than a virtual race. The new game will initially be launched on a trial basis within the province in anticipation of a potential national roll-out in due course.

“The solid progress made towards the national roll-out of ‘Lucky Racing’ and the planned approval for our second national game mean we are poised for a period of rapid growth,” continued Sun.

AGTech subsidiary GOT, a manufacturer and supplier of lottery and sports betting terminals, won a tender for the Chinese sports lottery’s replacement cycle in Q2, with the company also in active discussions with a number of other potential international customers and distributors which it claims with “further internationalise” the business.

“GOT’s success in securing the first supply tender of the domestic lottery terminal replacement cycle and its expansion into the overseas market clearly demonstrate the potential of our hardware business,” said Sun.

AGTech said that it will increasingly focus on the growth businesses of Gaming Technology and Internet and Mobile, with the company’s Lottery Management Business gradually becoming a “less important” division.

The company continued to closely monitor the prospective online and mobile lottery distribution business and believes that it is “well equipped” to react quickly in response to any new development of government policies.

AGTech added that any such developments would bring opportunities in terms of its approved games content as well as in systems and distribution.

“Looking ahead, the group will continue to explore new business opportunities and forge more strategic business alliances aimed at increasing its sales and profitability, and ultimately, maximising returns for shareholders,” said Sun. “We firmly believe that the group’s solid business foundation, strong customer and government relationships as well as the quality of its international gaming partnerships ideally position it to reach new heights when market opportunities emerge in the rapidly growing regulated lottery industry across China.”

Shares in AGTech Holdings Limited (HKG:8279) gained 1.67 per cent to close at $0.61 per share in Hong Kong earlier today.