FX headwinds hit Intralot turnover in 2018
Greek lotteries and gaming solutions provider Intralot is to launch a cost reduction plan after reporting declines in turnover for all key operating segments in its 2018 results, with its struggles blamed on foreign exchange losses and the failure to secure new supply contracts during the year.
Group turnover for the year ended December 31, 2018 fell 6.4% to €870.8m (£751.4m/$983.1m), with all core divisions posting year-on-year declines.
The licensed operations (B2C) segment saw revenue drop 3.5% to €577.7m, with a €22.6m decline in revenue from Argentina cited as a contributing factor. This, Intralot said, was due to the appreciation of the Euro against the Argentine Peso (up 130% over the past year), which wiped out a 50.0% increase in revenue in local currency terms.
Revenue from Cyprus was down €16.0m in 2018, as a result of Intralot’s operating licence in the market being suspended in the fourth quarter of 2017. These declines were offset in part by a €13.8m increase in Bulgarian B2C revenue, driven by the performance of virtual sports, racing and sports betting products, and a €6.2m increase in Polish revenue, though the Totolotek subsidiary has since been sold to Gauselmann Group.
The game management (B2B/B2G) division, meanwhile, posted a 9.3% year-on-year drop in turnover to €90.2m. This was again blamed largely on foreign exchange deficits, including a €13.2m decline from Turkish operations. This was blamed on the Euro’s 39.0% appreciation against the Turkish Lira, which wiped out a 14.0% increase in sports betting turnover in local currency. Intralot has since lost its contract to power Turkey’s sports betting monopoly Iddaa to a joint venture between Scientific Games and Turkish conglomerate Demirören Group.
Intralot’s other B2B division, comprising technology and support services, saw revenue fall 12.7% from FY2017 to €202.9m. This was attributed to lower sales in across a number of markets, namely Greece, Argentina and the US, which was often due to especially large deals being agreed in the prior year.
Gross gaming revenue for 2018 was also down, decreasing 10.2% to €457.0m, as a result of a €40.7m year-on-year drop in non-payout related GGR. Payout related GGR also fell (down €11.0m from 2017) as a result of the company’s B2C struggles and an increased average payout for the year, which rose 0.9 percentage points to 72.0%.
These struggles led to earnings before interest, tax, depreciation and amortisation (EBTIDA) declining 22.8% to €116.5m. This was blamed on worsening margins in Greece, resulting from changes to its supply contract with OPAP and a one-off fee paid by Hellenic Lotteries under its supply agreement. Earnings were also impacted by a shortfall in the US, following a major terminal sale in Ohio in Q4 2017, as well as the loss of a contract in South Carolina and start-up expenses related to the Illinois Lottery.
Further negative impact resulted from the failure to replicate a software licence right sale in Australia, recorded in Q2 2017, and first-time consolidation costs relating to the Bit8 gaming platform.
As a result earnings before interest and tax was down 41.9% at €51.3m for 2018. Once finance-related costs were stripped out, Intralot posted a pre-tax loss of €2.1m for the year. This, however, represented a 79.6% improvement on the €10.3m loss recorded in FY 2017.
Net loss after taxes amounted to €25.6m, again an improvement on the prior year loss (€53.4m). This amounted to a €58.5m loss from continuing operations, offset by a €32.9m profit from discontinued operations.
Intralot chief executive Sokratis Kokkalis said the company’s 2018 performance showed the need for “a wide reorganisation of [its] production and operational capabilities towards significant cost reductions and operational efficiencies”.
“This is why we recently conducted a management reshuffle in order to design and implement a new cost-reduction plan through better synergies between divisions and between headquarters and subsidiaries,” Kokkalis, who took on the top job following Antonios Kerastaris’ resignation in the wake of the Turkish contract loss, explained.
“I am personally committed and focused on our mission to best address the needs of our clients and to improve the cash flow generation of our business through a combination of new business and organic growth opportunities, coupled with cost optimisation, while continuing disinvestments from non-core assets when market conditions are favourable.”
This management reshuffle has already seen former Ladbrokes Coral omni-channel director Nicklas Zajdel named chief digital officer and Maria Stergiou promoted to the role of chief operations officer. Now Fotis Konstantellos has been named group chief commercial officer, and Edward Gekos group director of human resources.
Konstantellos, who has worked for Intralot for four years, will oversee the company’s business propositions and development, marketing, as well as working on the enhancement of its lottery solutions and platforms, in his new role. Gekos, meanwhile, will be support restructuring efforts and look to ensure the efficiency of Intralot’s business models, as well as overseeing recruitment efforts.