GVC warns of Q3 revenue decline amid UK retail struggles

GVC Holdings has forecast a 1% year-on-year drop in net gaming revenue for the three months to the end of September 2019, with the operator anticipating a double-digit decline in UK retail revenue following the cut in maximum B2 machine stakes.

In a trading update, the operator said UK retail trends following the cut in maximum B2, or fixed-odds betting terminal (FOBT) stakes to £2 from 1 April remain ahead of expectations. However, it added, the division's performance was being dragged down by a 36% like-for-like decline in machines net gaming revenue as a reult of the cut. A further 41 shops were closed during the period, taking the total closed in the wake of the cut to 198, with up to 900 expected to be closed over the next two years. 

Furthermore, it pointed out that like-for-like results meant revenue from an average of 3,267 shops in its retail estate was being compared to Q3 2019, when there was an average of 3,496 shops. As of 30 September 2019, it had 3,233 shops across the UK.

This was offset in part by like-for-like over-the-counter revenue growing 7% year-on-year, aided by efforts to substitute machine revenue with betting products. Despite this, UK retail revenue was down 18% year-on-year.

European retail, meanwhile, also reported year-on-year declines, with over-the-counter revenue falling 4%, and amounts wagered down 1%, largely due to tough comparables from the prior year, which included the final rounds of the Fifa World Cup. Adjusting for the impact of the tournament, over-the-counter wagers would have been up 3%, and net gaming revenue flat year-on-year.

Despite these retail struggles, GVC noted that it expected to see growth from its online business, with revenue up 12% from Q3 2018. This was driven by a 16% increase in sports revenue (15% on a constant currency basis), aided by a 5% rise in customer stakes. Gaming grew at a slower rate, but was up 8% (7% on constant currency).

Despite the third quarter decline, GVC confirmed that its has  upgraded its full year earnings before interest, tax, depreciation and amortisation (EBITDA) guidance, based on results for the year to date. EBITDA had been expected to come in at between £650m to £670m, but this has now been increased to £670m to £680m.

“I am delighted that the group’s financial performance has allowed us to upgrade our full year EBITDA expectations again,” GVC chief executive Kenneth Alexander said. “Online momentum remains strong across all major territories, with net gaming revenue up 12% in the quarter despite the prior period containing part of the World Cup.

“This performance continues to be driven by our industry-leading technology, products, brands, marketing capability, and people.”

Other key highlights for GVC in Q3 included the launch of the BetMGM app in New Jersey via its Road Digital US-focused sports betting joint venture with MGM Resorts. Alexander described the launch as a “key milestone” for the business, and said Roar was well-placed to capitalise on opportunities in the US market.

He added that the integration of the Ladbrokes Coral business was progressing, with the migration of the Ladbrokes, Coral and Gala online brands to GVC's platfrom to begin in Q4. This, he said, was likely to be completed during the first half of 2020.

GVC also launched its new GVC Global Foundation during the quarter, which will coordinate and support GVC’s corporate social responsibility initiatives around the world.

“This should be taken as a clear sign of our determination to spearhead the gambling industry’s approach to CSR initiatives, particularly with regard to responsible gambling,” Alexander said.

Looking ahead, GVC reiterated its belief that there could be delays to the implementation of Germany's third amended State Treaty on Gambling. The oeprator said that if clarity on the interim licences was not provided this year, the likelihood of delays would increase, as would the probability of legal challenges derailing the planned roll-out.

“There is, therefore, a realistic possibility that the regulatory position will not be resolved until 2021, when positive re-regulation of the German online sports-betting and gaming market is expected.”