Covid-19 closures eat into Sakza revenue and profit in Q1

12 June 2020

Czech gaming conglomerate Sazka Group has reported an 11.5% year-on-year decline in gross gaming revenue for the first quarter of 2020, after the business’s retail gaming operations were disrupted by the novel coronavirus (Covid-19) from mid-March.

Chief executive Robert Chvatal (pictured) said the first quarter had started “very positively” with strong momentum across markets and products in 2019 continuing into 2020.

However, as countries went into lockdown and non-essential businesses were closed as a result of Covid-19, retail performance was hit. This saw OPAP’s retail outlets and video lottery terminal (VLT) halls in Greece and Cyprus shuttered, while Austrian casinos closed their doors and Italian lottery retail sales suspended.

Amounts wagered across all products and brands fell 13.2% to €1.14bn, and after winnings were paid out, gross gaming revenue for the three months ended 31 March fell to €405.3m.

However, Chvatal noted that some of Sazka’s businesses had performed very well during the period, with online sales "partially compensating or in some cases more than compensating for the impact on physical channels”. Retail lottery sales in Austria and the Czech Republic remained open throughout the shutdown, he added.

He said all the businesses that had been affected by the pandemic were all now back in operation. While some restrictions remain, and uncertainty remains over the economic recovery in its key markets, Chvatal added there had been some “positive datapoints” since the resumption of operations.

“Our online and digital-only offerings have been a major strategic focus for the group for some time," he added. "I am very pleased that the changes in consumer behaviour as a result of the Covid-19 epidemic have allowed us to develop our product offering and increase our user base faster than would have otherwise been the case, with significant increases in registrations and active users as well as several exciting product launches."

GGR broke down to a €328.3m contribution from OPAP in Greece, down 17.1%, and a 24.6% year-on-year increase in revenue from the Sazka business in the Czech Republic. OPAP announced its own results earlier this week.

Lottery taxes for the quarter fell 2.3% to €138.5m. While GGR declined more rapidly, this did not translate into a similar drop in gaming levies and fees, due to an increase in the Czech lottery tax rate and minimum tax payments in Greece. This left net gaming revenue of €266.8m, down 15.6%.

Revenue from the sale of goods and services, meanwhile, was down 5.4% at €28.0m, and other operating income fell 19.3% to €12.1m.

The retail closures in multiple markets saw commission paid to retailers decline 15.1% to €86.9m, while expenditure on materials and consumables was down to €66.4m. Marketing, personnel and other operating expenses remained largely flat for the period.

Sazka’s share of profits from investments declined 19.5% to €25.0m. This was down to declines in Italian lottery business Lottoitalia’s profits, by €5.4m, and Casinos Austria by €3.3m. This was partially offset by a €3.1m increase in Stoiximan Group’s profits, with OPAP holding a controlling stake in the business.

This left operating earnings before interest, tax, depreciation and amortisation (EBITDA) of €124.5m, down 23.0% year-on-year. After depreciation and amortisation charges of €28.8m, operating profit for the quarter stood at €95.6m, down 28.1%.

After net finance costs of €34.0m (up 71.3%), pre-tax profit was €61.6m. Once income taxes of €19.0m were factored in, Sazka’s net profit for the quarter was €42.6m, down 50.9% from the prior year.

“We were well positioned to weather the challenges of the unprecedented and unexpected situation which the world suddenly found itself in,” Chvatal said. “We benefited in particular from our diverse range of products, sales channels, and geographic exposure, our favourable cost structure, and our strong liquidity.

“I am extremely proud of the resilience our businesses have shown and I would like to thank the entire Sazka Group team for their hard work and perseverance, and for seizing opportunities to progress our strategic priorities during a period which has on a personal level been very difficult for many of us.”