GVC ups profit guidance as online revenue hits $1bn in H1

GVC Holdings has revised its full year profit projections upwards 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 represents a 5% year-on-year rise if Ladbrokes Coral’s pre-acquisition figures were included, and 61% if its results were factored in from the date the acquisition closed on 28 March, 2018. Revenue, after Value Added Tax and the Australian Goods and Services Tax of £28.5, was £1.78bn, again a 5% pro forma improvement on the prior year. This was driven by the strong performance of GVC’s online business, which saw revenue rise to £1.02bn in the first half. Gaming NGR accounted for the majority (£574.6m) of the total, up 17% year-on-year, with sports revenue rising to £462.3m. This offset a 32% year-on-year decline in B2B revenue. Despite the prior half year period including the Fifa World Cup, the acquisitions of Georgia’s Crystalbet, in April 2018, and Australia’s Neds, in November 2018, offset these tough comparables, though GVC noted that this did slow sports growth. The online division reported growth across a number of key markets, including the UK, where NGR was up 13% from the prior year. This was aided by efforts to reinvigorate the Ladbrokes brand, deploying enhanced real-time CRM and improved gaming cross-sell techniques. Australia also performed well, with revenue up 28% on a pro forma, constant currency basis. GVC said that a disciplined marketing and bouncing strategy had helped offset the introduction of point of consumption taxes, with the business continuing 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. However 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 leading betting and gaming brand. While GVC remains bullish about the prospects for favourable regulatory conditions, analysts have suggested operators face significant restrictions on their operations under the State Treaty on Gambling. It also claims to be established as Brazil’s leading igaming brand, with NGR up 52% on a constant currency basis. This too may fall foul of incoming regulations, with the country’s government currently developing a framework for sportsbook-only regulations. Looking at the UK retail business, GVC reported 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. Despite 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 shifted 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 European retail business continued to grow strongly, 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. However costs associated with the acquisition and integration of the Ladbrokes Coral business resulted in GVC’s robust revenue failing to filter down to bottom line growth. Cost of sales for the period rose to £598.0m, which saw gross profit rise 2% on a pro forma basis to £1.18bn. Earnings before interest, tax, depreciation and amortisation was up 5%, at £376.8m. Administrative costs rose 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 wiped out much the operator’s profit for the period. This included £184.3m in charges related to the amortisation 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 strong 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. Considering this strong performance, and with UK retail performing ahead of expectations, it now expects full-year EBITDA to fall within the £650m-£670m range.