Full year gain projections have been revamped by GVC Holdings to higher level for the second time this year after the operator’s online and European retail growth helped offset a weaker performance from its UK retail arm.
Net gaming revenue (NGR) for the six months to 30 June was £1.81bn (€1.96bn$2.19bn). This constitutes a 5% year-on-year escalation if Ladbrokes Coral’s pre-acquisition figures were included and 61% if its results were articulated in from the date the acquisition closed on 28 March, 2018.
Proceeds, after Value Added Tax and the Australian Goods and Services Tax of £28.5, were £1.78bn, again a 5% pro forma enhancement on the prior year.
This was driven by the substantial performance of GVC’s online business, which saw revenue rise to £1.02bn in the first half. Gaming NGR alleged for the majority (£574.6m) of the total, up 17% year-on-year, with sports revenue rising to £462.3m. This counteracts a 32% year-on-year decline in B2B revenue.
Undeterred by the preceding half year period including the Fifa World Cup, the procurements of Georgia’s Crystalbet, in April 2018, and Australia’s Neds, in November 2018, counteract these tough comparable, though GVC noted that this did slow sports growth.
The online division reported advancement across a number of key markets, including the UK, where NGR was up 13% from the preceding year. This was subsidized by efforts to revitalize the Ladbrokes brand, deploying enhanced real-time CRM and improved gaming cross-sell techniques.
Performance of Australia was also commendable, with revenue up 28% on a pro forma, stable currency basis. It was further elaborated by GVC that a disciplined marketing and bouncing strategy had helped counteract the introduction of point of consumption taxes, with the business enduring to turn a profit.
Italy, meanwhile, saw revenue grow 15% on a constant currency basis, which the operator said had ensured strong momentum in the run up to the introduction of new advertising restrictions.
Nonetheless the online division faces potential headwinds in Germany, where it reported 23% NGR growth in H1, aided by football-centric marketing campaigns to re-establish bwin as the market’s dominating betting and gaming brand. While GVC remains compelling about the prospects for favourable managerial conditions, analysts have recommended operators face symbolic restrictions on their operations under the State Treaty on Gambling.
It also asserts to be well-established as Brazil’s dominant igaming brand, with NGR up 52% on a perpetual currency basis. This too may fall foul of incoming regulations, with the country’s government presently flourishing a framework for sportsbook-only regulations.
Considering the UK retail business, GVC proclaimed revenue of £586.8m, down 12% on a pro forma basis. Sports betting revenue was down marginally at £275.0m, while machine revenue fell 20% year-on-year to £311.8m.
Regardless of this, the operator said following the cut in maximum B2 stakes to £2 from 1 April, the retail performance had been stronger than expected. It said customers had deviated from gaming machines to over the counter and self-service betting terminals.
The stake cut is still expected to lead to a £137.5m decline in UK retail revenue over 2019, however, reducing to £120.0m per year within two years. Over the next two years up to 900 shops are expected to close, with the size of the retail estate falling 8.1% to 3,274 shops by 30 June. 203 shops were closed over the six month period, of which 157 were a direct result of the machine stake cut.
The retail business of Europe continued to expand robustly, albeit from a lower base. Revenue was up 7% year-on-year at £144.1m, aided by growth in virtual sports in Italy and Belgium, as well as strong football staking in Italy. Other revenue, including the InterTrader spread betting and Contracts for Difference business, was up 46% year-on-year at £35.9m.
Notwithstanding costs affiliated with the acquisition and integration of the Ladbrokes Coral business resulted in GVC’s strong revenue failing to filter down to bottom line growth. Cost of sales for the period climbed to £598.0m, which saw gross profit rise 2% on a pro forma basis to £1.18bn.
Before interest, earnings, tax, depreciation and amortization was up 5%, at £376.8m.
The cost of Administration rocketed significantly, to £922.7m, and one a £1.1m loss from joint ventures was factored in, operating profit was down 6% at £260.3m. Net finance costs rose significantly, from £26.5m in H1 2018 to £48.2m, and separately disclosed items of £224.4m obliterated much the operator’s profit for the period.
This included £184.3m in charges related to the amortization of acquired intangibles, as well as £20.0m in integration costs and £2.9m related to the B2 machine stake cut, namely redundancies. This saw GVC post pre-tax loss of £12.3m – compared to a £113.6m profit in the prior year – though a £14.4m tax benefit saw net profit for the period amount to £2.1m, down 98% year-on-year.
Since the end of the reporting period, GVC said trading between 1 July and 11 August saw robust trading momentum continue, with growth in online and European retail revenue. The only performance, it said, would mitigate any potential additional costs associated with new German sports betting licences.
In consideration of this robust performance, and with UK retail performing ahead of expectations, it now expects full-year EBITDA to fall within the £650m-£670m range.