LeoVegas swings to first quarter loss

2 May 2019

LeoVegas has reported an 11.6% rise in revenue for the first quarter of 2019, though growing costs saw the Stockholm-listed gaming operator post a €31,000 (£26,611/$34,757) loss for the period.

Revenue amounted to €86.3m, up from €77.4m in the first three months of 2018, with amounts wagered rising 8.0% to €268.5m. Of this total, 72% of stakes were placed via mobile devices, the channel’s highest share to date.

“During the first quarter we once again delivered sequential growth and posted record performance on a number of key performance indicators,” LeoVegas chief executive Gustaf Hagman said. “This, combined with the fact that our customer base is growing in a sound and sustainable way, has given us a good start to 2019.

“We are maintaining a high pace of expansion and innovation at the same time as we are focusing on cost efficiency and scalability in the group. This makes us well positioned for a year of continued profitable growth.”

LeoVegas picked out Germany, Denmark and Canada as among its better performing markets in Q1, and noted that it was growing market share in Italy, which it entered through the acquisition of Winga.it.

This helped offset declines in the newly regulated Swedish market. While LeoVegas’ Swedish customer base grew 23% year-on-year, organic revenue was down 16%, impacted by currency movements and short-term effects stemming from re-regulation.

Swedish revenue for January was affected by a particularly large share of welcome bonuses, while average player values remained below historical levels across the quarter. This led to a 5% year-on-year decline in revenue from the Nordic region - despite LeoVegas noting that all other territories other than Sweden had reported year-on-year growth.

Hagman addressed the ongoing debate over igaming marketing in Sweden, which may ultimately see online licensees banned from advertising in the market.

“We […] agree that the volume right now is too high, which at the same time is natural in a recently regulated market in which new players, such as the state-run companies, are launching new products,” he said. “Therefore we are working to diversify our marketing mix to other channels than commercial radio and TV, and we are conveying the responsible gaming message more in our advertising.”

However, he added, operators were put in a difficult position in that they were urged to apply for licences, then once the market opened were warned of potential major changes to the regulatory conditions. Of the current investigation into new controls on advertising in Sweden, he warned that a ban on marketing could hinder efforts to channel players towards licensed igaming sites.

The Nordics declined to 39% of group revenue, down from 45% in the prior year. This was offset by growth in the rest of Europe, with continued slow progress in the UK masked by favourable developments in other countries.

The rest of the world, meanwhile, saw revenue increase 52%, with the region now contributing 12% of the group total.

Looking at gross gaming revenue split by product, casino still accounts for the lion’s share (76%) of the operator’s total, followed by live casino, which contributed 16% of total GGR. Sports betting, meanwhile accounted for the final 9%.

Cost of sales rose 16.0% to €17.0m, predominantly made up of fees for external gaming and payment service providers. Gaming duties were also up, rising 62.0%, which LeoVegas attributed to a higher share of revenue from markets with a tax regime, including Sweden as of January 1, 2019.

This left a gross profit for the quarter of €57.9m, up 4.0% from Q1 2018.

LeoVegas also reported significant growth in personnel costs, which climbed to €12.6m, as a result of expanded compliance functions, and new product and technology recruitment, as the operator transitions away from employing consultants to bringing staff in-house. The expanded technology team launched the company’s new proprietary platform in Q1, allowing LeoVegas to flexibly launch and scale up new brands. GoGoCasino is the first to launch on the platform, with the operator noting that early customer response had been positive.

Marketing expenses rose 8.6% to €32.8m, largely due to direct marketing in Sweden and an increase in marketing for its Royal Panda brand. However, the operator noted, total marketing costs are likely to decrease in Q2, as a result of a lower spend in Sweden and renegotiating contracts with affiliate partners.

Other operating expenses declined to €8.1m, while LeoVegas benefitted from €2.4m in capitalised developments costs, and €343,000 in other income. This left earnings before interest, tax, deprecation and amortisation of €7.2m, down 24.3% year-on-year.

The operate made a €2.4m loss on depreciation and amortisation, and incurred charges of €4.1m relating to the amortisation of acquired intangible assets, leaving an operating profit of €649,000, down from €3.8m in the prior year. Once financial costs of €680,000 were stripped out, LeoVegas made a loss of €31,000 for the quarter.

Looking ahead, Hagman said that revenue for April was up 4.8% to €30.5m, with marketing costs as a percentage of revenue expected to decline quarter-on-quarter. Hagman said that the company’s focus on efficiency and cost control, including renegotiating supplier agreements in gaming, payments and marketing, would gradually be seen over the coming quarters.