AMTD Digital(HKD) - 2023 Q4 - Annual Report

Explanatory Note Change of Fiscal Year and Reporting Basis The company changed its fiscal year end to October 31 and its accounting basis from IFRS to U.S. GAAP - The board of directors approved a change of fiscal year end from April 30 to October 31 to realign with the controlling shareholder, AMTD Group Inc[12] - This report covers the six-month transition period from May 1, 2023, to October 31, 2023[13] - The company changed its accounting basis from IFRS to U.S. GAAP, with consolidated financial statements restated accordingly[9][21] Part I Operating and Financial Review and Prospects The company's performance reflects a strategic shift in digital solutions, with lower revenue but higher profit due to investment gains Operating Results Overview Revenue decreased to $8.7 million while net profit surged to $30.8 million for the six months ended October 31, 2023 Financial Performance Summary (in millions USD) | Period | Revenue | Net Profit | | :--- | :--- | :--- | | FY 2021 (ended Apr 30) | $25.3 | $22.1 | | FY 2022 (ended Apr 30) | $25.3 | $25.8 | | FY 2023 (ended Apr 30) | $33.1 | $40.8 | | 6M 2022 (ended Oct 31) | $13.9 | $10.7 | | 6M 2023 (ended Oct 31) | $8.7 | $30.8 | - The company's business spans digital solutions services, digital media, content and marketing, digital investments, and hotel operation, hospitality, and VIP services[22] Key Factors Affecting Results Performance is driven by macroeconomic conditions, digital service adoption, market expansion, competition, and talent retention - Global macroeconomic challenges, such as geopolitical tensions, inflation, and potential recessions, materially affect client demand and financial markets[24][25] - Business growth is dependent on the rate of adoption of digital financial services in Asia, which was accelerated by the COVID-19 pandemic[27] - Future success relies on expanding into new markets by obtaining necessary financial licenses and continuously introducing new products and services[29][30] - The hospitality business is highly competitive and seasonal, requiring strong brand reputation and service quality to succeed[31][32] Results of Operations Analysis A detailed comparison shows decreased revenue but increased profit in the latest six-month period due to non-operating gains Revenue by Segment (Six Months Ended Oct 31) | Segment | 2022 (US$ thousands) | 2023 (US$ thousands) | Change | | :--- | :--- | :--- | :--- | | Digital solutions - non financial | 12,822 | 1,278 | -90.0% | | Digital solutions - financial | 580 | 486 | -16.2% | | Digital media, content, marketing | 516 | 27 | -94.8% | | Hotel operations, hospitality, VIP | - | 6,882 | New | | Total | 13,918 | 8,673 | -37.7% | - 6M 2023 vs 6M 2022: Profit increased from $10.7M to $30.8M, primarily due to a $16.3M gain on financial assets (FVTPL) and a $14.7M gain on the disposal of subsidiaries[63][69][71] - FY 2023 vs FY 2022: Revenue increased from $25.3M to $33.1M, driven by growth in the non-financial digital solutions segment and the acquisition of the hotel operations business in February 2023[76][77] - FY 2022 vs FY 2021: Revenue remained stable at $25.3M, while profit increased from $22.1M to $25.8M, mainly due to a significant increase in fair value gains on financial assets at FVTPL, which rose from $9.1M to $16.9M[91][94][99] Segment Information The new Hotel Operations segment led revenue, while the Digital Media segment was most profitable due to investment gains Segment Results (Six Months Ended Oct 31, 2023 vs 2022, in millions USD) | Segment | Revenue 2023 | Result 2023 | Revenue 2022 | Result 2022 | | :--- | :--- | :--- | :--- | :--- | | Digital Solutions - Non Financial | $1.3 | $0.5 | $12.8 | $9.9 | | Digital Solutions - Financial | $0.5 | ($0.7) | $0.6 | $0.04 | | Hotel Operations, Hospitality & VIP | $6.9 | ($2.2) | - | - | | Digital Media, Content & Marketing | $0.03 | $16.1 | $0.5 | $3.4 | - The decrease in revenue and profit for the Digital Solutions (Non-Financial) segment was due to a strategic focus on generating long-term value from acquired IP titles and reengineering partner relationships[55] - The Hotel Operations segment was acquired in February 2023 and contributed $6.9 million in revenue for the six months ended October 31, 2023[57] Liquidity and Capital Resources The company maintains strong liquidity with $134.8 million in cash and believes it has sufficient capital for the next 12 months - As of October 31, 2023, the company held US$134.8 million in cash and cash equivalents[101] - Total bank borrowings were US$65.6 million as of October 31, 2023, with one loan of US$50.6 million secured by a hotel property and another unsecured loan of US$15.0 million[102] Summary of Cash Flows (Six Months Ended Oct 31, 2023 vs 2022, in millions USD) | Cash Flow Activity | 6M 2023 | 6M 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $21.4 | ($0.7) | | Net cash used in investing activities | ($36.0) | ($3.7) | | Net cash used in financing activities | ($4.0) | $128.9 | - Net cash from operating activities for the six months ended Oct 31, 2023 was US$21.4 million, a significant improvement from a use of cash in the prior period, primarily driven by profit before tax adjusted for non-cash items[106] Financial Information This section confirms the consolidated financial statements are appended and that no material litigation is ongoing - The company's consolidated financial statements are included as part of the transition report[122] - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations[123] Part II Defaults, Dividend Arrearages and Delinquencies The company reports no defaults, dividend arrearages, or delinquencies - None reported[126] Material Modifications to the Rights of Security Holders and Use of Proceeds No modifications to security holder rights have occurred, and $20.6 million of the $129.2 million in IPO proceeds have been used - There have been no material modifications to the rights of security holders[126] - The company raised US$129.2 million in net proceeds from its initial public offering in July 2022[128] - From the IPO date to October 31, 2023, approximately US$20.6 million of the net proceeds have been used for business expansion and general corporate purposes[129] Part III Financial Statements (Item 17) The company has elected to provide more comprehensive financial statements under Item 18 - The company elected to provide financial statements under Item 18[130] Financial Statements (Item 18) The consolidated financial statements, prepared under U.S. GAAP, are included at the end of this transition report - The consolidated financial statements are included at the end of the transition report[131] Exhibits This section lists all exhibits filed with the transition report, including corporate documents, agreements, and certifications - A comprehensive list of exhibits is provided, including foundational corporate documents, material contracts, and required certifications[132][133] Financial Statements Consolidated Statements of Profit or Loss and Other Comprehensive Income The company reported a profit of $30.8 million on $8.7 million revenue for the six months ended October 31, 2023 Key P&L Items (in thousands USD) | Item | FY 2023 | 6M ended Oct 31, 2023 | | :--- | :--- | :--- | | Revenue | 33,066 | 8,673 | | Changes in fair value on financial assets (FVTPL) | 15,386 | 16,279 | | Other gains and losses, net | 153 | 14,342 | | Profit for the period | 40,813 | 30,786 | | Basic Earnings Per Share (US$) | 0.57 | 0.42 | Consolidated Statements of Financial Positions As of October 31, 2023, the company had total assets of $537.5 million and total equity of $378.2 million Financial Position Summary (as of Oct 31, 2023 vs Apr 30, 2023, in thousands USD) | Item | Oct 31, 2023 | Apr 30, 2023 | | :--- | :--- | :--- | | Total Assets | 537,497 | 483,608 | | Cash and cash equivalents | 134,843 | 152,930 | | Amount due from AMTD Group | 195,278 | 126,444 | | Assets classified as held for sale | 77,045 | 12,081 | | Total Liabilities | 159,301 | 140,574 | | Bank borrowings | 65,565 | 65,803 | | Total Equity | 378,196 | 343,034 | Notes to the Consolidated Financial Statements The notes detail accounting policies, segment performance, acquisitions, share capital, and related party transactions - Note 2 (Basis of Preparation): The financial statements were prepared under U.S. GAAP, transitioning from IFRS[160][162] - Note 14 (Acquisitions): In February 2023, the company acquired a 96.1% interest in AMTD Assets, which holds a global property portfolio, in a non-cash transaction accounted for as a business combination under common control[313][315] - Note 26 (Share Capital): In July 2022, the company issued 7,360,000 Class A ordinary shares in its IPO, raising net proceeds of $129.2 million, and also repurchased 616,346 Class B ordinary shares from its immediate holding company for $318.9 million during FY 2023[383] - Note 29 (Related Parties): The Group has significant balances with its ultimate holding company, AMTD Group; as of Oct 31, 2023, the amount due from AMTD Group was $195.3 million, which is unsecured and bears interest at 2% per annum[405]